Steven Spadijer Is the GST Unconstitutional?

Is the GST unconstitutional? Some s 55 problems revisited Steven Spadijer* Section 55 of the Australian Constitution requires that laws imposing taxation, except duties of customs or of excise, shall deal with one subject of taxation only. Yet, in substance, the Goods and Services Tax (GST) itself is a duty of excise, a customs duty, a services tax, a tax on a tax, a land transfer tax, and much more. In order to arrive at this conclusion, however, this article makes three key points. First, it argues that, based on general conceptions and ordinary understanding, neither “final private consumption” nor “supply” can possibly constitute the subject of taxation of the GST Act. Secondly, the article examines the political backdrop that led to the passage of the GST. It reveals that not only did 29 Senators expressly reject the characterisation that the GST Act dealt with a single subject of taxation, but argues the GST was a textbook example of “tacking”, that is, combining a number of controversial, possibly unpopular, tax proposals – such as an indirect tax on services and indirect tax on State imposts – with other more anodyne or innocuous, possibly popular, tax measures. Finally, the article presents a number of hypothetical scenarios in order to demonstrate the absurdities that would result if “supplies” is treated as a single subject of taxation. The article concludes by asking whether the Australian Treasury has actually discovered a clever drafting technique to successfully evade the constraints found within s 55, or whether the drafters of the GST were simply hoping the High Court would refuse to place any practical limit on the federal taxation power – even if it meant rendering s 55 unable to fulfil its intended purpose of protecting the people of the States from financial aggression on the part of the Commonwealth.

PART I: INTRODUCTION The purpose of this article is to revisit an issue discussed among academic commentators,1 the Australian Senate,2 and the popular press3 when the Goods and Services Tax (GST) was first enacted: * BA, LLB (Hons) (ANU); Barrister, Wentworth Chambers, Sydney. The author would like to thank Dr Terry Dwyer, the Personal Private Secretary to the late Senator Brian Harradine, the Father of the Senate, for providing useful feedback on this article; the late Professor Leslie Zines, who despite his retirement remained keen to discuss constitutional matters with ANU students, and who provided very helpful feedback in relation to this article. The author also appreciates the very useful comments received from two anonymous referees, Dr Gavin Putland, David Cominos, and Christopher Bevan. He would also like to thank Professor Rick Krever, Professor Geoffrey Lindell, Chris Sievers, Gordon Brysland, as well as numerous others from all walks of life who have discussed the obvious constitutional problems associated with the GST. This article is dedicated to all of them, collegially and with thanks. 1

Dabner J, “Are the Capital Gains Tax Provisions Constitutional?” (1992) 1 Taxation in Australia (Red Edition) 70 at 76; Cominos D and Dwyer T, “Constitutional Question Marks Over GST” (1999) 25 Weekly Tax Bulletin 586 at [751] (Cominos and Dwyer I); Cominos D and Dwyer T, “Constitutional Problems in the Goods and Services Tax” (1999) 28 AT Rev 69 (Cominos and Dwyer II); Cominos D, “Goods and Services Tax: The Conceptual Framework” (1999) 3 The Tax Specialist 61 at 70-71; Bevan C, “Constitutional Aspects of the Goods and Services Tax” (1999) 28 AT Rev 173; Brysland G, “Chapter 1: GST and Government in 2010” in Peacock C (ed), GST in Australia (Thomson Reuters, 2010) pp 1, 6, fn 24. See also Email from Gordon Brysland to the author (23 October 2013) noting that Justice Graham Hill also expressed the view, at a GST conference in 2003 in Noosa, that the s 55 arguments against the GST “had legs”; Email from Geoffrey Lindell to the author (14 January 2014): “I know I remember having considerable doubts about the validity of the GST when I was teaching s 55.” 2

Editor, “Is the GST Constitutional? The Senate Debate Continues” (1999) 18 Weekly Tax Bulletin 431 at 531.

3

Grattan M, “Nil by Month”, The Sydney Morning Herald (24 April 1999) p 40; Cleary P, “Government Solicitor Queries GST Legislation”, The Australian Financial Review (11 June 1999) p 1 (late edition) (Cleary I); Cleary P, “GST: The Nightmare on Main St”, The Australian Financial Review (11 June 1999) p 4 (Cleary II); Cleary P, “Legal Claim May Make GST Invalid”, The Australian Financial Review (18 June 1999) p 4 (Cleary III); Cleary P, “Validity of GST Untested for Months”, The

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does A New Tax System – Goods and Services Tax (General) Act 1999 (Cth) (GST Act) violate the “one subject of taxation” limit found in s 55 of the Constitution? Fifteen years on, the High Court has yet to address the question as to whether or not the GST Act passes constitutional muster. Presumably, there are two key reasons why legal practitioners have been reluctant to bring about any High Court challenge against the GST Act. One reason is that the High Court always defers to the Commonwealth in all major cases dealing with the single subject limit. The very fact the High Court in its entire 111-year history has never invoked the “one subject of taxation” limit – that “hitherto ineffectual menace”4 – to invalidate a single piece of federal tax legislation strengthens this view. Another reason is the view among some tax practitioners that the GST is something akin to the Ark of the Covenant: too sacred to ever be touched, even by the High Court. Indeed, according to this “realpolitik” view of constitutional law, s 55 is nothing more than a toothless inscription in the Constitution; despite any judicial assertions to the contrary, the High Court would simply be too timid to ever actually enforce the single subject mandate because it would result in invalidating an entire piece of tax legislation – the all too real consequence associated with any holding that a law has transgressed the single subject limit.5 Or perhaps – at long last – the once in a century political backdrop which led to the passage of the GST might give the High Court a unique opportunity to invoke the single subject limit. In doing so, the High Court might be given the chance to refute the prevailing perception amongst the powers that be in the Australian Tax Office that the single subject of taxation limit is a dead letter provision incapable of ever actually being enforced in practice. Indeed, if future reforms to the GST become part of the political agenda, then it seems inevitable the question will be raised again: were the host of academic commentators and 29 Senators correct to claim the GST Act violated the single subject limit found in s 55 of the Constitution? This article argues they were correct in their objections. In particular, it points to a number of salient factual distinctions between the GST Act and other tax legislation which has been upheld under s 55. Part II of this article summarises the relevant s 55 case law. Part III applies the relevant principles to the legislative history surrounding the passage of the GST and the language found within the GST Act. It explains why the GST is not a tax on final private consumption, as well as why “supply” cannot be a subject of taxation in and of itself. It then asks what, if anything, would be left of s 55 once a noun derived from a verb (supply) is treated as a subject of taxation. Finally, the article concludes that the GST clearly deals with a collection of subject matters necessarily separate and distinct.

PART II: SECTION 55 – A HISTORICAL AND

JURISPRUDENTIAL SUMMARY

The second paragraph of s 55 of the Constitution provides (emphasis added): Laws imposing taxation, except laws imposing duties of customs or of excise, shall deal with one subject of taxation only; but laws imposing duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only. Australian Financial Review (5 July 1999) p 5 (Cleary IV); Richards R, “Taxation: A Constitutional Snag for GST” (1999) 37 Law Society Journal 26. Since 1999, citizens from all walks of life have continued to express the view that the GST violates s 55 of the Constitution: Drury A, “Letters to the Editor”, Central Coast Herald (1 June 2000) p 10; Drury A, “Letters to the Editor”, The Newcastle Herald (1 June 2000) p 10; Quilty B, “Constitutional Validity of GST and Professional Negligence of GST Advisers” (2000) 32 Weekly Tax Bulletin 943 at [1341]; Nixon S, “Legal Challenge; The Tax Revolution”, The Sydney Morning Herald (3 July 2000) p 12; Baines N, “GST Fails The Test of Law”, The Daily Mercury (26 December 2008) p 9. 4

Moore v Commonwealth (1951) 82 CLR 547 at 569 (Dixon J). To be sure, other parts of s 55 have been enforced: see, for example, Air Caledonie International v Commonwealth (1988) 165 CLR 462; Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450; 22 ATR 856; Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480. However – 111 years on – the High Court has yet to invalidate a single piece of tax legislation for violating the one subject of taxation limit. 5 Richards R, “Validity of The GST” (2003) 73 Australian CPA Journal 26 at 26, asserting that even if there was a theoretical basis for invalidating the GST Act, “it is inconceivable that the courts would strike down, in totality, any law as fundamental as a tax law”.

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Rather than discussing everything which has ever been said about the second paragraph of s 55, it might be easier to reduce the relevant history and case law to the 35 core propositions.6

General principles (1) The purpose of s 55 is to protect the Senate from any possible abuse of the restriction placed upon it by s 53 of the Constitution, which provides that the Senate may not amend proposed laws imposing taxation.7 In particular, it prevents the Senate from being coerced by the process known as “tacking”8 – that is, bundling together a number of different kinds of tax proposals, perhaps an unlimited number, into one measure.9 “Tacking” is particularly deplorable where the Senate, for whatever reason, supports taxes on some subjects, while it opposes a tax on some other distinct subject, but is still forced to accept the entire agglomeration, either because it bows to political pressure to avoid crippling the finances of the Commonwealth, or because it likes the overall tax package despite a few bad apples.10 Section 55, however, combats “tacking” by requiring each distinct tax to be contained in a separate bill, thereby allowing each proposed tax to be considered individually on its merits and voted on individually, rather than as one element in an overall tax package.11 This, in turn, allows the Senate to protect the States from financial aggression on the part of the Commonwealth12 by allowing the Senate to vote down each proposed tax that might be regarded as an outrage to the people of the States as they happen to be represented in the Senate (or, perhaps, by allowing the Senate to refuse to pass a tax on a specific subject, at least until specific amendments or exemptions recommended by the Senate relating to an offensive aspect of a particular tax is acceded to by the House of Representatives). (2) According to Quick and Garran, the United Kingdom Paper Duties Precedent can be used to illustrate how s 55 might be able to protect the Senate. In 1861, the Liberal Chancellor of the Exchequer, William Gladstone, sought to repeal paper duties – a tax on paper used to produce 6

This updates and expands the list compiled by Bevan, n 1 at 175-179.

7

Resch v FCT (1942) 66 CLR 198 at 222-223 (Dixon J). Note Dixon J says s 54 imposes this limit; in fact, it is s 53 which imposes this limit. See also Quick J and Garran R, The Annotated Constitution of the Commonwealth of Australia (Angus and Robertson, 1901) pp 678-679; R v Barger (1908) 6 CLR 41 at 134 (Higgins J), describing s 55 as the “corollary” of ss 53 and 54; MacCormick v FCT (1984) 158 CLR 622 at 653 (Brennan J); 15 ATR 437; Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4262 (Peter Cook), accusing the government of using the “section 53 gun” to pass the GST Act; Williams v Commonwealth (2012) 248 CLR 156 at 205 (French CJ), noting s 53 highlights “the relative weakness of the Senate against an Executive Government which has the confidence of the House of Representatives.” 8

Offıcial Record of the Debates of the Australasian Federal Convention, Melbourne, 8 March 1898, pp 2005, 2034-2035 (John Downer); Quick and Garran, n 7, pp 678-679; National Trustees, Executors and Agency v FCT (1916) 22 CLR 367 at 371 (Griffith CJ); Harding v FCT (1917) 23 CLR 119 at 130 (Barton J); DFCT (NSW) v WR Moran Pty Ltd (1939) 61 CLR 735 at 779 (Evatt J); Resch v FCT (1942) 66 CLR 198 at 210 (Rich J).

9 Buchanan v Commonwealth (1913) 16 CLR 315 at 323 (Barton J); Quick and Garran, n 7, pp 678-679; Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 456 (Deane J). Of course, “tacking” includes grouping together of tax bills of different kinds and unlimited number in one measure: Osborne v Commonwealth (1911) 12 CLR 321 at 352-353 (Barton J). But the question is always one of substance rather than mere form: see Propositions 7 and 9. 10 Quick and Garran, n 7, pp 678-679; Stephens v Abrahams (No 2) (1903) 29 VLR 229 at 235 (Alfred Deakin); Osborne v Commonwealth (1911) 12 CLR 321 at 352-353 (Barton J); Harding v FCT (1917) 23 CLR 119 at 134 (Isaacs J); Buchanan v Commonwealth (1913) 16 CLR 315 at 323-324 (Barton J); Resch v FCT (1942) 66 CLR 198 at 223 (Dixon J); Luton v Lessels (2002) 210 CLR 333 at 357 (Kirby J); 49 ATR 471; Transcript of Proceedings, Permanent Trustees Australia Ltd v CSR [2004] HCA Trans 43 at 671, 676-677 (Gleeson CJ). 11

Offıcial Record of the Debates of the Australasian Federal Convention, Melbourne, 8 March 1898, pp 2026-2027 (Henry Dobson), 2029 (George Reid); Osborne v Commonwealth (1911) 12 CLR 321 at 363 (Isaacs J); Harding v FCT (1917) 23 CLR 119 at 134 (Isaacs J); State Chamber of Commerce & Industry v Commonwealth (The Second Fringe Benefits Tax Case) (1987) 163 CLR 329 at 341 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ).

12

Osborne v Commonwealth (1911) 12 CLR 321 at 353 (Barton J); Buchanan v Commonwealth (1913) 16 CLR 315 at 323-324 (Barton J), 335 (Isaacs J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 341 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ). See also FCT v Munro (1926) 38 CLR 153 at 185-186 (Isaacs J).

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newspapers, popularly called “a tax on knowledge”.13 His proposal passed in the Commons by 219 votes to 210, a bare majority of nine votes. However, the more conservative, Tory-dominated House of Lords rejected the Paper Duties Repeal Bill by 193 votes to 104 because it was feared that cheaper newspapers might make it easier to disseminate radical or subversive left wing ideas. The Commons then rebranded its entire budget for the forthcoming year into a single omnibus tax bill consisting of (a) a reduction in income tax; (b) an increase in property taxes, (c) an increase in stamp duties, (d) a reduction of tea and sugar duties, and (e) a repeal of paper duties. Overwhelmed, their Lordships – apparently supporting a reduction in tea and sugar duties but opposing the repeal of paper duties – were forced to either assent or reject the whole scheme, and assent they did. “Such a composite or general tax bill could not be submitted by the House of Representatives to the Senate; it would be unconstitutional, the maxim being ‘one tax, one bill’, except in the case of bills dealing with customs and excise”.14 Thus, it is correct to say that s 55 is concerned with political relations, and contemplates broad distinctions between possible subjects of taxation based on common understanding and general conceptions, rather than being based on any analytical or logical classification.15 (3) Section 55 is merely a procedural restraint, given that it requires tax bills to be framed in a certain form; it is not designed to control the precise scope of any legislative head of power, nor does it entrench a particular individual right.16 Nevertheless, any taxpayer has standing to invoke s 55 because s 55 exists in order to vindicate not only the rights of the Senate, but also to protect the liberty of the individual.17 (4) Upholding the rule of law,18 and the liberty of the individual (cf Proposition 3), as well as protecting smaller States from a lawless Senate majority composed of larger States passing an omnibus tax bill19 helps to explain why s 55 contains no limitation which prevents the High Court from invalidating a federal tax statute several years after it is enacted into law. That is to say, s 55 contains no constitutional statute of limitations – five, 10, 20 or 100 years might pass before a tax law is finally invalidated by the High Court under s 55. (5) Section 55 extends to laws in the form in which they stand from time to time after the original enactment, that is, the law as written when the relevant statute happens to be challenged. Therefore, in a case where a subsequent amendment inserts a new provision dealing with more than one subject of taxation in an otherwise perfectly valid statute, it seeks to bring about 13 Paul HW, The Life of William Ewart Gladstone (Devon College, 1909) pp 93-100; Jennings I, Cabinet Government (Cambridge University Press, 1936) pp 182-183; Plucknett TFT, English Constitutional History (11th ed, Sweet and Maxwell, 1960) pp 548-549; Roseveare H, The Treasury (Allen Lane, 1969) p 140; Sabine B, “Great Budgets: VI” (1972) British Tax Review 111; Feuchtwanger E, Gladstone (Allen Lane, 1975) pp 110-111; Bebbington B, William Ewart Gladstone (Eerdmans Publishing, 1993) p 95; Matthew HCG, Gladstone 1809-1898 (Clarendon Press, 1997) pp 113-114, 135; Hoppen T, The Mid-Victorian Generation (OUP, 1998) pp 215-216; Hennessy P, The Prime Minister (Palgrave Macmillan, 2001) p 48; Stebbings C, The Victorian Taxpayer and the Law (Cambridge University Press, 2009) pp 62-64. 14 Quick and Garran, n 7, pp 678-679; Offıcial Record of the Debates of the Australasian Federal Convention, Melbourne, 8 March 1898, pp 2064-2065 (Edmund Barton). Note, however, a s 55 violation can also arise by either “accident or design”: Quick and Garran, n 7, p 679. 15

Resch v FCT (1942) 66 CLR 198 at 222-223 (Dixon J); MacCormick v FCT (1984) 158 CLR 622 at 652 (Brennan J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 343 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Austin v Commonwealth (2003) 215 CLR 185 at 274 (Gaudron, Gummow and Hayne JJ); 51 ATR 654.

16 MacCormick v FCT (1984) 158 CLR 622 at 653 (Brennan J); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 455 (Mason CJ, Brennan and McHugh JJ). 17

Offıcial Report of the National Australasian Convention Debates, Adelaide, 14 April 1897, pp 581 (Bernard Wise), 593-594 (Josiah Symon).

18 Offıcial Report of the National Australasian Convention Debates, Adelaide, 14 April 1897, pp 591-592 (Richard O’Connor), 593-594 (Josiah Symon). 19

Offıcial Report of the National Australasian Convention Debates, Adelaide, 14 April 1897, p 594 (Josiah Symon/George Reid exchange); Offıcial Record of the Debates of the Australasian Federal Convention, Melbourne, 8 March 1898, pp 2003-2006, 2009-2010 (Patrick Glynn, Josiah Symon and John Downer generally).

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something which – given the general wording of s 55 – the Constitution expressly forbids and which therefore is not within the competence of Parliament to achieve.20 (6) A law that violates the “one subject of taxation” requirement is invalidated in its entirety21 since it is the law as a whole that infringes the constitutional mandate22 and there is no ordinary means of knowing which subject of taxation represents more than the other (or others) the will of Parliament itself.23 Note, however, some academic commentators have noted that the latter difficulty does not really apply in an instance where, for example, a subsequent amendment introduces a land value tax into an otherwise perfectly valid income tax statute: the subsequent amendment alone would be invalid (subject, of course, to the doctrine of severability).24 (7) The singleness of a subject cannot be conclusively determined by the mere fact that Parliament has chosen to group together several distinct subjects,25 and that is true even if Parliament chooses to give a collective name to the group.26 Thus, the fact a particular label or a general name has been given to the Act is of little or no importance where there is no ambiguity in the provisions of the Act. Rather, one must look at the actual substance of the provisions of the Act being challenged.27 (8) “One subject of taxation” is a phrase that must depend for its application on the circumstances. A tax on land, a tax on ships, and a tax on furniture are, in one respect, taxes on three separate subjects. But if a man dies leaving an estate which as a single mass includes the three classes of property, then by general understanding and long-existing usage, a tax on the whole estate which he has left, indiscriminately considered as a unity, is a tax on one subject.28 20 The basis for this proposition is the fact that all the other limbs of s 55 have been interpreted in this way: Air Caledonie International v Commonwealth (1988) 165 CLR 462 at 471-472 (Mason CJ, Wilson, Brennan, Deane, Dawson, Toohey and Gaudron JJ); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 461, 464 (Deane J), 465, 471 (Dawson, Toohey, Gaudron JJ); Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480 at 507-508 (Mason CJ, Brennan, Deane and Gaudron JJ). 21

Quick and Garran, n 7, p 679; Moore H, The Constitution of the Commonwealth of Australia (John Murray, 1902) p 178; Moore H, The Constitution of the Commonwealth of Australia (2nd ed, Maxwell, 1910) p 247; Osborne v Commonwealth (1911) 12 CLR 321 at 335, 340 (Griffith CJ); AG (Qld) v AG (Cth) (1915) 20 CLR 148 at 164 (Griffith CJ), 177 (Isaacs J); Harding v FCT (1917) 23 CLR 119 at 134 (Isaacs J); Resch v FCT (1942) 66 CLR 198 at 210 (Rich J); Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279 at 302 (Menzies J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 342 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 471-472 (Dawson, Gaudron and Toohey JJ).

22 FCT v Munro (1926) 38 CLR 153 at 184-185 (Isaacs J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 374 (Deane J); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 456 (Deane J). 23

Offıcial Record of the Debates of the Australasian Federal Convention, Melbourne, 8 March 1898, p 2068 (Isaac Isaacs); Osborne v Commonwealth (1911) 12 CLR 321 at 353 (Barton J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 342-343 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 470-471 (Dawson, Toohey, Gaudron JJ).

24 Lane PH, The Australian Federal System (Law Book Co, 1972) p 285, fn 63, proposing the bright line rule that only the subsequent amendment results in pro tanto invalidity; Dabner, n 1 at 75-76, citing judicial restraint as another reason for this rule. Compare Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 471-472 (Dawson, Gaudron and Toohey JJ), applying a similar logic in the excise context. 25 National Trustees, Executors & Agency Company of Australasia Ltd v FCT (1916) 22 CLR 367 at 378 (Isaacs J); Harding v FCT (1917) 23 CLR 119 at 135 (Isaacs J). 26 Harding v FCT (1917) 23 CLR 119 at 135 (Isaacs J). See also National Trustees Executors & Agency Company v FCT (1916) 22 CLR 367 at 380 (Duffy and Rich JJ); Resch v FCT (1942) 66 CLR 198 at 210-211 (Rich J). 27

Resch v FCT (1942) 66 CLR 198 at 210-211 (Rich J); National Trustees Executors & Agency Company v FCT (1916) 22 CLR 367 at 375 (Barton J), 380 (Duffy and Rich JJ). Of course, this principle is well established in the ss 90 and 92 context: Peterswald v Bartley (1904) 1 CLR 497 at 511 (Griffith CJ); Commonwealth v South Australia (1926) 38 CLR 408 at 423 (Isaacs J), 438 (Starke J); FCT v Munro (1926) 38 CLR 153 at 189 (Isaacs J); DFCT (NSW) v WR Moran Pty Ltd (1939) 61 CLR 735 at 779 (Evatt J); Attorney-General (NSW) v Homebush Flour Mills Ltd (1937) 56 CLR 390 at 416, 418-419 (Evatt J); Ha v New South Wales (1997) 189 CLR 465 at 498 (Brennan CJ, McHugh J, Gummow J and Kirby J); 36 ATR 319.

28

National Trustees, Executors & Agency Company v FCT (1916) 22 CLR 367 at 378 (Isaacs J). See also Perpetual Trustee Co Ltd v FCT (1932) 47 CLR 402 at 415 (Dixon J); Knowlton v Moore 178 US 41 (1900) at 48-49, 58.

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(9) It is really a question of fact whether the subject matter of an Act is single.29 The test is whether, looking at the subject matter that is dealt with as if it were a unit by Parliament, it can then, in the aspect in which it has been so dealt with, be fairly regarded as a unit, or whether it then consists of matters necessarily distinct and separate.30 (10) The characterisation of a subject matter as fairly being dealt with as a unit may depend on (a) the application of certain indicia or on the circumstances of life, which are ever-changing31 or (b) the aspect from which it has been viewed by Parliament because, from the interlacing of the circumstances of life, the thing may from one standpoint stand apart from everything else, and from other points of view may become a component part of other things.32 (11) The federal Parliament, in selecting its subject of taxation, is entitled to take things as it finds them in rerum natura (in their natural state), irrespective of any positive laws of the States prescribing rules to be observed with regard to the acquisition or devolution of formal title to property.33 (12) Where the main or substantial subject of the tax has first been ascertained (if that is possible), the question arises whether particular provisions – directed at defining or widening the area or incidence of the tax, or the liability to it, or preventing avoidance or evasion or facilitating collection – have in truth introduced a new or second subject; this must be determined by considering their natural connection with or relevance to the main subject.34 (13) Section 55 permits the insertion into an imposition Act of any provision that is fairly relevant and incidental to the imposition of tax upon a single subject of taxation35 (such as anti-avoidance provisions, exemptions, evidentiary presumptions, and penal provisions for tax evasion,36 as well as matters dealing with the administration, collection, recovery, and appeals)37 and in the event some incidental or unimportant provision might strictly be held to

29 Harding v FCT (1917) 23 CLR 119 at 135, 141 (Isaacs J), 142 (Duffy and Rich JJ); Resch v FCT (1942) 66 CLR 198 at 210-211 (Rich J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 344 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ). 30 National Trustees Executors & Agency Company v FCT (1916) 22 CLR 367 at 379 (Isaacs J); Harding v FCT (1917) 23 CLR 119 at 135 (Isaacs J); Resch v FCT (1942) 66 CLR 198 at 210-211 (Rich J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 350 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Austin v Commonwealth (2003) 215 CLR 185 at 272, 275 (Gaudron, Gummow and Hayne JJ). Compare Permanent Trustee v CSR (Vic) (2004) 220 CLR 388 at 398 (Kourakis QC, in arguendo), suggesting that obvious or distinct policy considerations might justify separate consideration, bill by bill, of the various matters being taxed. 31

National Trustees Executors & Agency v FCT (1916) 22 CLR 367 at 378 (Isaacs J).

32

Harding v FCT (1917) 23 CLR 119 at 135 (Isaacs J).

33

Morgan v DFCT (1912) 15 CLR 661 at 666 (Griffith CJ); Cornell v DFCT (1920) 29 CLR 39 at 46 (Isaacs, Higgins, Gavan Duffy, Rich and Starke JJ). 34

Resch v FCT (1942) 66 CLR 198 at 223-224 (Dixon J); MacCormick v FCT (1984) 158 CLR 622 at 654 (Brennan J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 351 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 457-459 (Deane J).

35 Osborne v Commonwealth (1911) 12 CLR 321 at 373 (Higgins J); Harding v FCT (1917) 23 CLR 119 at 134 (Isaacs J); Resch v FCT (1942) 66 CLR 198 at 213 (Starke J); Cadbury-Fry-Pascall Pty Ltd v FCT (1944) 70 CLR 362 at 384 (Starke J). 36

Waterhouse v DFCT (SA) (1914) 17 CLR 665 at 674 (Barton J), 675-678 (Isaacs J), 678 (Gavan and Duffy JJ); National Trustees Executors & Agency v FCT (1916) 22 CLR 367 at 372 (Griffith CJ), 376-377 (Barton J), 379 (Isaacs J); British Imperial Oil Co Ltd v FCT (1925) 35 CLR 422 at 434 (Isaacs J), 443-444 (Rich J); Colonial Gas Association Ltd v FCT (1934) 51 CLR 172 at 181 (Starke J), 188-189 (Dixon J); FCT v Trautwein (1936) 56 CLR 211 at 217 (Evatt J); Resch v FCT (1942) 66 CLR 198 at 213 (Starke J), 226 (Dixon J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 349-351 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ). 37 Munro v FCT (1926) 38 CLR 153 at 209-210 (Higgins J), 215-216 (Starke J, with Duffy J agreeing). See also Permanent Trustee v CSR (Vic) (2004) 220 CLR 388 at 419 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

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introduce a second subject matter, the court, where two constructions are possible, should choose a more benign interpretation of such a provision, so the statute may survive rather than perish (ut res magis valeat quam pereat).38 (14) The mere fact that a law imposing taxation deals with one category or species of taxation does not necessarily mean it also deals with one subject of taxation only. For example, while customs and excise items are considered as appertaining to one “form” or “species” of taxation,39 the second paragraph of s 55 clearly indicates that customs and excise duties would deal with multiple “subjects” of taxation were they not expressly exempt from the single subject mandate, with the subject of taxation here being each distinct “type” of commodity or “item” being taxed.40 Similarly, although in the 1930s the wholesale sales tax (WST) was regarded as being a popular species of taxation internationally,41 because of the “one subject of taxation” limit (a constitutional requirement unique to Australia) it was necessary to introduce nine separate assessment bills and nine separate rates bills for nine different types of sales “to do precisely what, in Canada, can be done with one assessment act and one rates act”42 and indeed it was “originally thought that there would have to be 36 bills”43 for 36 subjects of taxation. (15) There is a common understanding that an income tax is a form of direct taxation, while excises and custom duties are a form of indirect taxation;44 with the former species of tax 38

Osborne v Commonwealth (1911) 12 CLR 321 at 337 (Griffith CJ), 353 (Barton J), 364 (Isaacs J); Waterhouse v DFCT (SA) (1914) 17 CLR 665 at 676-677 (Isaacs J).

39 AG (NSW) v Collector of Customs (NSW) (1908) 5 CLR 818 at 850-851 (Isaacs J); Osborne v Commonwealth (1911) 12 CLR 321 at 363 (Isaacs J): “Customs items and Excise items being respectively considered as appertaining to one species of tax”; Philip Morris Ltd v Commissioner of Business Franchises (1989) 167 CLR 399 at 427 (Mason CJ and Deane J): “An excise is a particular form or category of tax”, 465 (Dawson J): “It has never been questioned that in speaking of duties of excise, s 90 is referring to a limited category of taxes”; Roy Morgan Research Pty Ltd v FCT (2011) 244 CLR 97 at 107 (French CJ, Gummow, Hayne, Crennan and Bell JJ): “Section 90 of the Constitution is directed to what otherwise might have been the concurrent powers of the Parliament of the Commonwealth and other Australian legislatures to impose particular forms of taxation, namely duties of customs and excise.” See also Lane HP, Commentary on the Australian Constitution (2nd ed, LBC, 1997) p 403; Cominos and Dwyer II, n 1 at 70, 72, 76. 40 Quick and Garran, n 7, pp 550-551: “A law imposing customs duties may include any number of items of taxation, and a law imposing excise duties may deal with any number of items of taxation”; Knowlton v Moore 178 US 41 (1900) at 88-89, 94: “Excises usually look to a particular subject, and levy burdens with reference to the act of manufacturing them, selling them, etc. They are or may be as varied in form as are the acts or dealings with which the taxes are concerned”; Notts Bros & Co Ltd v Barkley (1925) 36 CLR 20 at 26 (Isaacs J): “While singleness of subject of taxation is secured in general it was recognized that, in framing Customs and Excise Acts, that general rule would be impossible … In the result, so long as a customs law deals only with customs duties, it matters not on what subjects or on what conditions those duties are imposed”; Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 471 (Dawson, Toohey and Gaudron JJ, with Mason CJ, Brennan and McHugh JJ agreeing): “The second paragraph of s 55 proceeds upon the assumption that duties of customs or of excise may involve more than one subject of taxation. Thus, where duties of excise are imposed by a law, the law may deal with more than one subject of taxation provided the law is confined to duties of excise. Any other subject is impermissible.” For a contrary assertion that customs and excise duties are one subject of taxation, see General Practitioners Society v Commonwealth (1980) 145 CLR 532 at 569 (Aickin J). Historically, in the United Kingdom, an excise tax was used as a convenient label for a mass of heterogeneous taxes that had nothing in common except for the mere fact that they were taxes, and that they were collected by the excise administration: Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR 263 at 267 (Latham CJ); Parton v Milk Board (1949) 80 CLR 229 at 244 (Latham CJ); Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529 at 559 (Kitto J). Of course, virtually all of these disparate taxes could be subsumed into a single subject of taxation if one seriously believes “taxable supplies” is a single subject of taxation in and of itself. 41 The WST was introduced as an emergency measure in Germany, France, Czech Slovakia, Canada, Belgium, Italy, Hungary, Boumania, Austria, and Turkey after WWI: Commonwealth, Parliamentary Debates, House of Representatives, 30 July 1930, pp 4930-4931 (James Scullin). 42

Commonwealth, Parliamentary Debates, House of Representatives, 30 July 1930, p 4932 (James Scullin).

43

Commonwealth, Parliamentary Debates, House of Representatives, 29 September 1932, p 1025 (James Scullin); Cominos and Dwyer II, n 1 at 74. 44 National Trustees, Executors & Agency Co v FCT (1916) 22 CLR 367 at 378 (Isaacs J); GG Crespin & Son v Colac Co-operative Farmers Ltd (1916) 21 CLR 205 at 218-219 (Isaacs J) (there is a “common understanding” that an excise is a form indirect taxation); Commonwealth v South Australia (1926) 38 CLR 408 at 420 (Knox CJ), 435 (Higgins J), 437 (Rich J); 437-438 (Starke J); Attorney-General (NSW) v Homebush Flour Mills Ltd (1937) 56 CLR 390 at 416, 419-420 (Evatt J)

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being one which is demanded from the very persons whom it is intended or desired should pay it, while the latter species is one which is demanded from a specific person, in the expectation and intention that he or she will indemnify himself or herself at the expense of another.45

“Object” versus “subject” of taxation (16) The second paragraph of s 55 only prohibits a law containing two or more subjects of taxation, not two or more objects of taxation.46 There may be as many objects of taxation – meaning persons taxed – as Parliament pleases.47 (One way to conceptualise the difference is as follows: object of taxation deals with who is being taxed or who is required to pay the tax, while subject of taxation deals with what is being taxed).48 (17) Therefore, the definition of a subject of taxation may be selectively confined, but if the burden of a tax falls discriminately, artificially, or even arbitrarily on a variety of distinct objects (that is, different classes of taxpayers), this will not result in a s 55 violation.49 (18) The nature of the subject taxed is not changed merely because actual liability to pay the tax is imposed upon a person not necessarily enjoying the income or increase in wealth, but on someone having or obtaining, or having had a means or opportunity of recoupment or indemnification, out of the subject of taxation involved.50 (19) Legislation does not violate s 55 merely because it taxes an interposed entity (such as a company) standing between the subject of taxation (such as land) and the taxpayer (such as a shareholder). In reality, the only subject of taxation is the ultimate subject matter of the tax, namely, land – there is in such a case no tax imposed on shares or interests in companies (as opposed to land) merely because of the choice of the shareholder as the object of the taxation (being the ultimate quasi-owner of the land) rather than the company (who is the actual legal owner of the land).51 (20) Property of a deceased person which ceases to be his or her property before his or her death (that is, what the deceased owned during his or her lifetime) is the same subject of taxation as the property forming part of the estate after his or her death – the test of subject matter depends (indirectness is “a well-known characteristic” of an excise); Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR 263 at 285 (excise duties “ordinarily exhibit this characteristic” of indirectness); Parton v Milk Board (Vic) (1949) 111 CLR 229 at 259 (Latham CJ) (an excise duty is “plainly indirect”); Moore v Commonwealth (1951) 82 CLR 547 at 577 (Fullagar J); Browns Transport Pty Ltd v Kropp (1958) 100 CLR 117 at 129 (an excise will “generally” be an indirect tax); Dennis Hotels Pty Ltd v Victoria (1961) 104 CLR 529 at 546 (Dixon CJ), 560 (Kitto J), 575-576 (Taylor J) (indirectness is “commonly regarded” as a characteristic of an excise duty). 45 Peterswald v Bartley (1904) 1 CLR 497 at 509 (Griffith CJ); GG Crespin & Son v Colac Co-operative Farmers Ltd (1916) 21 CLR 205 at 218 (Isaacs J); AG (Manitoba) v AG (Canada) [1925] AC 561 at 566 (Lord Haldane); Matthews v Chicory Marketing Board (1938) 60 CLR 263 at 277-278 (Latham CJ), 285 (Starke J). Indirect taxes tend to be more concerned with the commodity itself, and less with the particular taxpayer than direct taxes: AG (British Columbia) v Kingcome Navigation Co [1934] AC 45 at 59. 46

Osborne v Commonwealth (1911) 12 CLR 321 at 373 (Higgins J); FCT v Hipsleys Ltd (1926) 38 CLR 219 at 236-237 (Higgins J); MacCormick v FCT (1984) 158 CLR 622 at 651, 655-656 (Brennan J).

47

Osborne v Commonwealth (1911) 12 CLR 321 at 372-373 (Higgins J); FCT v Hipsleys Ltd (1926) 38 CLR 219 at 236-237 (Higgins J). Thus, a tax, despite having more than one object of taxation, may deal only with one subject of taxation: Colonial Gas Association Ltd v FCT (1934) 51 CLR 172 at 180-181 (Starke J), 188-189 (Dixon J); Resch v FCT (1942) 66 CLR 198 at 224 (Dixon J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 351 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ), 375-376 (Deane J).

48

The distinction between subjects and objects is well recognised in wills and deeds; that is, certainty as to the subjects of the gift (what is being given) and certainty as to the object (who receives the gift): cf FCT v Hipsleys Ltd (1926) 38 CLR 219 at 236-237 (Higgins J). 49 Osborne v Commonwealth (1911) 12 CLR 321 at 373 (Higgins J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 375-376 (Deane J). 50

Resch v FCT (1942) 66 CLR 198 at 224 (Dixon J); British Imperial Oil Co Ltd v FCT (1925) 35 CLR 422; Colonial Gas Association Ltd v FCT (1934) 51 CLR 172 at 180-181 (Starke J), 188-189 (Dixon J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 351 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ).

51 Osborne v Commonwealth (1911) 12 CLR 321; Morgan v DFCT (1912) 15 CLR 661; AG (Qld) v AG (Cth) (1915) 20 CLR 148 at 176 (Isaacs J); Resch v FCT (1942) 66 CLR 198 at 224 (Dixon J).

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on the ultimate subject, which relevantly is all the property owned by a person within 12 months before his or her death, rather than on the object of the taxation (be it the executor or the deceased person during his or her lifetime).52 (21) In ascertaining whether a law imposes a tax, the prescribed criteria of liability must be considered. Clearly the subject of taxation must be found among those criteria. For the purposes of the second paragraph of s 55, it is possible to say of some criteria that they pertain more to a description of the subject of taxation than to the persons to be taxed (the objects).53

Judicial deference (22) The case law does not deny that any enactment that offends against the one subject of taxation requirement will be invalidated by the High Court,54 for if the High Court were unable to invalidate a law that violated s 55, then s 55 would be a vain inscription in the Constitution.55 However, before striking down an entire piece of tax legislation which Parliament itself thought dealt with a single subject of taxation, and thereby potentially throwing the finances of the Commonwealth into disorder, the introduction of more than one subject matter must be demonstrably clear, and a court must be extremely cautious before it concludes that a violation exists (according to the common and general understanding of the community).56 (23) The characterisation of the subject matter of a tax is a question of fact, which may be extremely complicated, and the court will naturally give great weight to the fact that Parliament, drawn from the whole nation and being familiar with its circumstances, itself has thought that the subject of the tax as dealt with by it was in fact a unity.57 Apparently, this is because the application of the test involves what is in substance a question of fact or value judgment.58 (24) If the two Houses of Parliament, each alert as to its (respective) duties and rights and regarding the matter from the broad standpoint of the community, both consider that a proposed tax is laid upon a single subject, then it would require a very clear demonstration of error to lead a court to say that was wrong, because the ingredients, so to speak, of the taxable subject were necessarily separate and distinct.59 52

National Trustees Executors & Agency Co (1916) 22 CLR 367 at 371-372 (Griffith CJ), 379-380 (Gavan Duffy and Rich JJ).

53

MacCormick v FCT (1984) 158 CLR 622 at 652, 654 (Brennan J); Ha v New South Wales (1997) 189 CLR 465 at 497 (Brennan CJ, McHugh, Gummow and Kirby JJ); Waterhouse v DFCT (SA) (1914) 17 CLR 665 at 675-676 (Isaacs J); FCT v Hipsleys Ltd (1926) 38 CLR 219 at 229-230 (Isaacs J). This suggests the Parliamentary understanding of the subject of taxation is primarily revealed from the ordinary and natural meaning language of the statute in dispute: cf Bevan, n 1 at 174, 178, 181; Lane, n 24, p 283. 54 Resch v FCT (1942) 66 CLR 198 at 222 (Dixon J); Australian Communist Party v Commonwealth (1951) 83 CLR 1 at 193 (Dixon J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 343 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ). 55 National Trustees Executors & Agency (1916) 22 CLR 367 at 379 (Isaacs J). Of course, if the High Court were to rubber stamp whatever a bare majority of Parliament asserts is a single subject, then that would involve the abdication of its judicial function under ss 71, 75(iii) and 76 of the Constitution, thereby allowing Parliament to become the final (as opposed to an) arbiter of its own jurisdiction: Bevan, n 1 at 176, fn 21. This would be the constitutional equivalent of putting the foxes in charge of the henhouse. 56 Osborne v Commonwealth (1911) 12 CLR 321 at 363-364 (Isaacs J); AG (Qld) v AG (Cth) (1915) 20 CLR 148 at 177 (Isaacs J); National Trustees Executors & Agency (1916) 22 CLR 367 at 379 (Isaacs J); Harding v FCT (1917) 23 CLR 119 at 134-136 (Isaacs J); FCT v Munro (1926) 38 CLR 153 at 180 (Isaacs J); Shell Co of Australia Ltd v FCT [1931] AC 275 at 298 (Lord Sankey); Resch v FCT (1942) 66 CLR 198 at 211 (Rich J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 344 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Austin v Commonwealth (2003) 215 CLR 185 at 272, 274-275 (Gaudron, Gummow and Hayne JJ). 57

Harding v FCT (1917) 23 CLR 119 at 135 (Isaacs J); Resch v FCT (1942) 66 CLR 198 at 223 (Dixon J).

58

The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 343-344 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Austin v Commonwealth (2003) 215 CLR 185 at 272 (Gaudron, Gummow and Hayne JJ). 59 National Trustees Executors & Agency Co v FCT (1916) 22 CLR 367 at 378-379 (Isaacs J); Harding v FCT (1917) 23 CLR 119 at 134-136 (Isaacs J); Osborne v Commonwealth (1911) 12 CLR 321 at 364 (Isaacs J).

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(25) The expression “one subject of taxation” does not presuppose some recognised classification of taxes according to subject matter (but see Proposition 31 below) and the High Court has uniformly refused to give the expression “one subject of taxation” a narrow or inflexible application.60 Thus, while the subject of the tax may be gathered from a general consideration of the enactment (or enactments) in question, it is for the legislature to choose its own subject, and its choice is fettered neither by existing nomenclature nor by categories that have been adopted for other purposes.61 (26) No doubt, if the court is convinced that there has been a violation of the constitutional prohibition, it must give effect to the organic law, regardless of the (fiscal) consequences;62 but at the same time, the court will require clear evidence that a law is invalid especially when: (a) a s 55 challenge occurs during wartime; in such a context, tax legislation deserves particular deference;63 or (b) there was no violent protest in the Senate that the proposed legislation dealt with more than one subject of taxation only and Parliament clearly understood that the law in dispute was a single legislative initiative64 (Propositions 22-24); or (c) the legislation challenged was drafted with “meticulous care” and “is so carefully framed to avoid any collision with s 55”.65

Common understanding approach (27) Section 55 is not concerned with taxonomies used by economists or lawyers who use their own jargon when discussing subjects of taxation: economists look at the incidence and economic consequences of a tax, while lawyers look at the legal mechanism employed to secure the collection and operation of a tax and its creation, transfer and devolution of rights. But these are not the considerations to which s 55 is directed.66 Rather, the question is whether on “common understanding and general conceptions”67 the statute in dispute deals with two or more subject matters which are broadly distinguishable from one another. 60 Resch v FCT (1942) 66 CLR 198 at 222 (Dixon J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 343-344 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ). 61 Resch v FCT (1942) 66 CLR 198 at 222-223 (Dixon J). Here, Dixon J cites no authority for this proposition, although he may simply be rewording Proposition 11 or 32; it is unclear. See also The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 343-344 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Austin v Commonwealth (2003) 215 CLR 185 at 272, 274-275 (Gaudron, Gummow and Hayne JJ). 62 Harding v FCT (1917) 23 CLR 119 at 135 (Isaacs J). Compare AG (Qld) v AG (Cth) (1915) 20 CLR 148 at 177 (Isaacs J); FCT v Munro (1926) 38 CLR 153 at 180 (Isaacs J). More recently, the argument that the court should resist avoid overruling its precedents or striking down a statute simply because it might cause much inconvenience was rejected in Ha v New South Wales (1997) 189 CLR 465 at 503 (Brennan CJ, Gummow, McHugh and Kirby JJ) and Re Wakim (1999) 198 CLR 511 at 554, 556 (McHugh J), 569 (Gummow and Hayne JJ). See also Williams v Commonwealth (No 2) (2014) 309 ALR 41 at 55-56 (French CJ, Hayne, Kiefel, Bell and Keane JJ). 63

Harding v FCT (1917) 23 CLR 119 at 135 (Isaacs J). Note also that all the leading s 55 cases advocating judicial deference were decided at the height of WWI or WWII. 64

Permanent Trustee v CSR (Vic) (2004) 220 CLR 388 at 413 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ), 468-469 (Kirby J, concurring); Harding v FCT (1917) 23 CLR 119 at 137 (Isaacs J). Compare Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4262 (Peter Cook).

65 Moore v Commonwealth (1951) 82 CLR 547 at 569 (Dixon J), 573 (McTiernan J). The 1930s sales tax, with its nine classes of sales, was also drafted in a similarly meticulous fashion: Commonwealth, Parliamentary Debates, House of Representatives, 30 July 1930, pp 4930, 4934 (James Scullin); Commonwealth, Parliamentary Debates, Senate, 6 August 1931, p 5053 (John Daley); DCT (SA) v Ellis & Clark Ltd (1934) 52 CLR 85 at 89 (Dixon J); Cominos and Dwyer II, n 1 at 74; Hill G, CCH Sales Tax Guide (CCH Ltd, 1989). See also DFCT (NSW) v WR Moran Pty Ltd (1939) 61 CLR 735 at 779 (Evatt J). 66

Resch v FCT (1942) 66 CLR 198 at 213 (Starke J), 223 (Dixon J); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 456-457 (Deane J); Austin v Commonwealth (2003) 215 CLR 185 at 272, 275 (Gaudron, Gummow and Hayne JJ). One here is reminded of insights offered by Peckham J in Nicol v Ames, 173 US 509 (1899) at 516.

67 MacCormick v FCT (1984) 158 CLR 622 at 654 (Brennan J); National Trustees Executors & Agency (1916) 22 CLR 367 at 378-379 (Isaacs J); Harding v FCT (1917) 23 CLR 119 at 126 (Barton J), 134-136 (Isaacs J); Resch v FCT (1942) 66 CLR 198

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(28) To determine whether a law deals with a single subject of taxation, one must look at the ordinary, everyday meaning and usage of the words found in the text of the tax statute being challenged.68 Sources such as past or present Parliamentary speeches or debates,69 or even case law interpreting the statute in dispute70 can all be used as evidence to determine whether a law deals with a single subject. For example, in the course of Parliamentary Debates, neither William Pitt nor Sir Robert Peel believed they were distorting the English language when using the word “income” to describe monetary receipts derived from property.71 Similarly, judicial decisions, when analysing the word “income”, have naturally assumed that income can be derived from many diverse sources, including the rental value of their homes72 and capital profits (distributed by a company in a winding up).73 Thus, “income”, as generally understood, can come from many sources – and the use of artificial standards for the purpose of quantifying income (be it gross income, net income, or provisionally ascertained but not assessed income) does not necessarily deprive a tax on sums so calculated as being just that: a tax on income.74 (29) Equally, the insights provided by lexicographers – rather than textbooks written by economists or lawyers – can be used to determine what the nature (or precise contours) of a purported subject of taxation actually is.75 For example, it was argued the statutory definition of “fringe benefits” exceeded the ordinary meaning of the phrase by extending the term to include benefits derived from sources other than the employer.76 However, the common understanding of fringe benefits was neither as narrow nor as precise as has been suggested. The definition of “fringe benefits” was supplied, not by any legal or economic textbook, but by The Macquarie Dictionary (1981) and indicated that the common understanding of the expression of fringe benefit is not confined to benefits provided by an employer to his or her employee. Rather, the definition of fringe benefits extends to any benefits which are related to employment, whether or not they are provided by the employer. The statutory definition expressly gave effect to this understanding by specifically defining “fringe benefits” as those received “in respect of the employment”.77 at 210 (Rich J), 222-223 (Dixon J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 343, 348-351 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Austin v Commonwealth (2003) 215 CLR 185 at 274 (Gaudron, Gummow and Hayne JJ). 68 Harding v FCT (1917) 23 CLR 119 at 138-141 (Isaacs J); see also the cases cited in nn 69-77 below. For application of this rule in the GST context, see Bevan, n 1 at 174, 178, 181-182; Cominos and Dwyer II, n 1 at 79. 69

Harding v FCT (1917) 23 CLR 119 at 139-141 (Isaacs J).

70

Harding v FCT (1917) 23 CLR 119 at 130 (Barton J), 135, 140-141 (Isaacs J); Resch v FCT (1942) 66 CLR 198 at 213 (Starke J), 225 (Dixon J). 71 Harding v FCT (1917) 23 CLR 119 at 127, 139-140 (Isaacs J). During the 1890s, the framers debated whether an income tax dealt with more than a single subject of taxation. The question was whether income derived from rent and income derived from personal exertion were two different subjects of taxation. The consensus appears to be that they were both income, that is, merely one aspect or component of a single unified subject: Offıcial Record of the Debates of the Australasian Federal Convention, Melbourne, 8 March 1898, pp 2050 (Vaiben Solomon), 2053 (Edmund Barton). 72 Harding v FCT (1917) 23 CLR 119 at 130-131 (Barton J), 133, 140 (Isaacs J); cf DCT v Kirk [1900] AC 588 at 592 (Lord Davey); London County Council v AG [1901] AC 26 at 35 (Lord McNaughton), 44 (Lord Davey). 73

Resch v FCT (1942) 66 CLR 198 at 225 (Dixon J).

74

British Imperial Oil Co Ltd v FCT (1925) 35 CLR 422 at 434 (Isaacs J); FCT v Munro (1926) 38 CLR 153 at 193 (Isaacs J), 209 (Higgins J), 216 (Starke J); Colonial Gas Association Ltd v FCT (1934) 51 CLR 172 at 188 (Dixon J); Resch v FCT (1942) 66 CLR 198 at 213 (Starke J); Moore v Commonwealth (1951) 82 CLR 547 at 569 (Dixon J), 573 (Webb J); FCT v Clyne (1958) 100 CLR 246 at 271 (Webb J); Austin v Commonwealth (2003) 215 CLR 185 at 274 (Gaudron, Gummow and Hayne JJ). 75 Harding v FCT (1917) 23 CLR 119 at 133 (Isaacs J); The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 348-351 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ). 76

The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 348 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ); Bevan, n 1 at 178, 181.

77

The Second Fringe Benefits Tax Case (1987) 163 CLR 329 at 348-351 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ).

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Historical and comparative approach (30) Historically, a land value tax is a tax on a single subject of taxation, namely, land (or, perhaps more precisely, land values).78 (31) One must look at what the accepted meaning of the phrase “one subject of taxation” was at the time of Federation – that is, one must ask: does the legislation deal with what historically would be regarded as more than a “single subject of taxation” as that term was originally understood to mean in 1900, when the Constitution was adopted?79 (32) However, another line of authority suggests that the material date to determine whether a tax deals with “one subject of taxation” is not the year 1900, but the year the tax being challenged actually passed.80 This is because the Constitution is presumably to stand for all time; and what was a single subject in 1900 may not be so a century hence, and vice versa.81 Therefore, a court must ask itself: in the year when the statute in dispute was first enacted, that is, at the time when the Act was passed imposing the new tax, did it deal with what then – in the circumstances of the Commonwealth at that time – would be fairly regarded as a single subject?82 (33) The two approaches might be immaterial, given that, either way, recourse to the practice of a British legislature or a dominion or colonial legislature may serve as a guide in determining whether a provision of a particular kind could be regarded as falling within a particular subject matter,83 at least for the types of taxes commonly found throughout the 18th or 19th century – that is, prior to 1900.84 78 Osborne v Commonwealth (1911) 12 CLR 321 at 340 (Griffith CJ), 351 (Barton J), 373 (Higgins J); AG (Qld) v AG (Cth) (1915) 20 CLR 148 at 176 (Isaacs J), 180 (Higgins J). The unimproved value of the land is determined at the date of its valuation: McGeoch v Commissioner of Land Tax (1929) 43 CLR 277 at 290-291 (Knox CJ and Dixon J), 303 (Isaacs J). 79

National Trustees Executors & Agency Co (1916) 22 CLR 367 at 372-373 (Griffith CJ); Harding v FCT (1917) 23 CLR 119 at 129-131 (Barton J); Lane, n 24, pp 283-284: “For all that [referring to Propositions 24 and 32], no doubt the Court would be impressed by the fact that the challenged law dealt with two or more subjects of taxation which existed persistently as several subjects, say, in the nineteenth century … History, especially pre-1900 history, is one factor which enables the Court to appreciate the current usage of taxation terms.”

80 Harding v FCT (1917) 23 CLR 119 at 136 (Isaacs J); Lane, n 24, p 283: “For the Court has suggested that the time at which the challenged Act is passed is the date at which one ascertains whether the law dealt with what is considered then one subject of taxation.” 81 Harding v FCT (1917) 23 CLR 119 at 136 (Isaacs J). The very fact that a well-known category of taxation like income tax can consist of more than one subject of taxation in 100 years hence suggests the folly of reading the words one “subject” of taxation as one “form” or “species” of taxation. 82 Harding v FCT (1917) 23 CLR 119 at 136 (Isaacs J); Bevan, n 1 at 177 (Proposition 17). But this is not to say history is completely irrelevant to the analysis: Lane, n 24, p 283: “The very Justice who prescribed the material date as the date of the enactment of the legislation of the challenged Act was himself prepared to be guided by pre-Federation understanding of one subject of taxation, although the Commonwealth scheme was enacted in 1914”, citing National Trustees, Executors & Agency Company v FCT (1916) 22 CLR 367 at 378-379 (Isaacs J). Indeed, in Harding itself Isaacs J spent several pages analysing the 18th and 19th century usage of the word “income”: Harding v FCT (1917) 23 CLR 119 at 136-141. 83

Resch v FCT (1942) 66 CLR 198 at 222-223 (Dixon J).

84

GG Crespin & Son v Colac Co-operative Farmers Ltd (1916) 21 CLR 205 at 219-221 (Isaacs J); National Trustees, Executors & Agency Company v FCT (1916) 22 CLR 367 at 378-379 (Isaacs J); Harding v FCT (1917) 23 CLR 119 at 130 (Barton J), 136-141 (Isaacs J). Of course, it is unlikely the framers of the Constitution ever envisaged the possibility that “tacking” might occur by amalgamating well-known “categories” or “kinds” of indirect taxes like excise duties, custom duties, services tax, a debit tax, and land transfer tax etc into a “hybrid supertax” like the GST. Yet today, as will be seen below, this is precisely what is occurring in most legislatures around the world, be they unicameral in nature, or with weak upper houses. Therefore, the GST provides a historical precedent whereby a number of historically distinct taxes can be tacked together into an omnibus supertax. However, for reasons given below, if a noun representing a verb can be a subject of taxation, then an “Income and Tea Tax” (that is, a tax on the supply of tea and a tax on the supply of income) or a “Land and Inheritance Tax” (that is, a tax on the value of land and a tax on the value of any inherited estate) would now represent a single subject of taxation, namely, the verbs “supply” or “value” respectively. It would effectively mean s 55 permits the very thing it was designed to prevent because it would allow the executive government to bundle together proposals of different kinds into a single bill simply by giving a collective name to the group of subjects taxed (Propositions 1 and 7).

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(34) However, Propositions 31-33 only appear to be useful where Parliamentary understanding itself is divided or unclear (cf Proposition 26);85 or where the historical approach coincides with, rather than overrides, the popular use of an everyday scope or meaning of a word (cf Proposition 28).86

Deeming provisions (35) Parliament cannot, by any definition or provision that it may adopt, contravene the provisions of the Constitution.87 Nor can s 55 be avoided by deeming facts to be as they are not, or by deeming things to have a character which they do not bear.88 Accordingly, Parliament cannot deem two (or more) different subjects of taxation to be only one subject, for example, by deeming a poll tax or land transfer tax to be a land value tax;89 or by pretending that income tax is a poll tax or a tax having for its true subject the failure of the real taxpayer to discharge his or her tax liability;90 or by deeming a finished in situ swimming pool forming part of the land to be an excise – which is obviously not a tax on goods, but a tax on land or something that forms part of realty to land.91

PART III: APPLICATION With the above propositions in mind, it is necessary to look at the prescribed criteria of tax liability imposed under the GST Act to determine whether the GST deals with more than one subject of taxation (Proposition 21). Under s 9-5, a GST liability is payable if a supply is made for consideration in the course or furtherance of a registered enterprise connected with Australia (a so-called “taxable supply”). Clearly, however, the key concept which permeates the GST Act is “supply”, which is defined in s 9-10(2) as follows: (1) A supply is any form of supply whatsoever. (2) Without limiting subsection (1), supply includes any of these: (a) a supply of goods; (b) a supply of services; (c) a provision of advice or information; (d) a grant, assignment or surrender of real property; (e) a creation, grant, transfer, assignment or surrender of any right; (f) a financial supply; (g) an entry into, or release from, an obligation; (i) to do anything; or (ii) to refrain from an act; or (iii) to tolerate an act or situation; 85 Compare Permanent Trustee v CSR (Vic) (2004) 220 CLR 388 at 413 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). 86 See Austin v Commonwealth (2003) 215 CLR 185 at 274 (Gaudron, Gummow and Hayne JJ), citing Harding v FCT (1917) 23 CLR 119 for the broad historical understanding of the nature of “income”. 87 Resch v FCT (1942) 66 CLR 198 at 213 (Starke J), quoted approvingly in Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 469 (Dawson, Toohey and Gaudron JJ). See also University of Woollongong v Metwally (1984) 158 CLR 447. 88 Resch v FCT (1942) 66 CLR 198 at 213 (Starke J); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 469 (Dawson, Toohey and Gaudron JJ). 89 Waterhouse v DFCT (SA) (1914) 17 CLR 665 at 673-674 (Barton J), 675-676 (Isaacs J). See also MacCormick (1984) 158 CLR 622 at 637-638 (Gibbs CJ, Wilson, Deane and Dawson JJ); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 469 (Dawson, Toohey and Gaudron JJ). 90

FCT v Hipsleys Ltd (1926) 38 CLR 219 at 229-230 (Isaacs J).

91

Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 454-455 (Mason CJ, Brennan and McHugh JJ), 470 (Dawson, Toohey and Gaudron JJ), as discussed in Austin v Commonwealth (2003) 215 CLR 185 at 275 (Gaudron, Gummow and Hayne JJ).

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In order for the High Court to dismiss a case challenging the validity of the GST, it must endorse the argument that the GST is either a tax on “supply”92 or the “act of supply”.93 However, in order for the GST to be declared unconstitutional, the High Court must be prepared not to characterise the GST as being a “direct tax on a supply” or even a “direct tax on a supply for consideration”. Rather, it must be prepared to characterise the “number of specified matters”94 listed in the shopping list above – matters which can and do exist “independently” of each other and do not rob one another of their “distinctiveness”95 – as representing, in effect, indirect taxes on a range of necessarily distinct and separate matters (Propositions 7, 9). That is to say, the High Court must be prepared to characterise the GST as being an indirect tax on goods when various goods are rendered for a consideration at the point of supply (tax proposal 1); an indirect tax on services when various services are rendered for a consideration at the point of supply (tax proposal 2); an indirect tax on real property when real property is rendered for a consideration at the point of supply (tax proposal 3); an indirect tax on the creation, grant, transfer, assignment or surrender of any intangible right when such rights are rendered for a consideration at the point of supply (tax proposal 4); an indirect tax on financial transactions when financial supplies are rendered for a consideration at the point of supply (tax proposal 5); and an indirect tax on any release or entry into any contractual obligations when such obligation is rendered for a consideration at the point of supply (tax proposal 6), and, in the case of s 81-5 of the GST Act, an indirect tax on State taxes when State taxes are supplied whether with or without consideration (tax proposal 7), plus any other residual thing capable of being provided or furnished for a consideration by a registered enterprise in Australia. Thus, the act of furnishing or providing something for a consideration in Australia represents the critical event or occasion, the condition precedent, the taxing point, which renders the disparate subjects of taxation listed in s 9-10(2) as being liable to taxation, but “a supply” without more is not the subject of taxation in and of itself.96 There are, however, at least three facts which can be immediately discounted from this analysis. First, the mere fact that the GST is today an internationally recognised “category” or “species” of indirect tax does not necessarily mean it also deals with one “subject” of taxation only. After all, customs and excise duties, like the GST, are an internationally recognised “category” or “species” of indirect tax, yet the Constitution itself recognises, on its face, that excises and customs can deal with multiple subjects of taxation – hence why they are expressly exempt from the single subject mandate (Proposition 14).97 Therefore, the best way to read s 55 is to assume it means what it says: it prohibits 92 Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4260-4261 (Rod Kemp); Economic Legislation Estimates Committee, Parliament of Australia, Canberra, 8 June 1999, pp E189-E193 (Greg Smith); 9 June 1999, pp E354-E367: Senator Murphy: “What are the three respective subjects of taxation of the three GST imposition bills?” Greg Smith: “You are asking me a legal question, and I am not in a position to provide legal opinions. The information I can give you is that there are three bills which would, if passed, provide for the imposition of the tax. One of them is a general bill. One of them is an excise bill and the other is a customs bill. They are the three that are there. I think I said yesterday that the tax is a tax on supply. So that is, if you like, the key phrase in the assessment bill.” 93 Hill P, “Taxation of Goods and Services in Australia – Past, Present and Future” (2009) Australian GST Journal 21 at 24; Thomson Reuters, Australian GST Handbook (2012) at [1.105]: “The argument is that because the GST legislation imposes GST in respect of goods, services, and other things, it is a tax on more than one subject, and therefore is in breach of Section 55. The counterargument is that rather than imposing a tax on the various types of things supplied, the GST legislation confines itself to taxing the act of supply. In turn, this view is countered by the argument that as the GST law also taxes taxable importations, it cannot be said to only tax the act of supply.” 94

Travelex Ltd v FCT (2010) 241 CLR 510 at 516 (French CJ and Hayne J); 76 ATR 329.

95

Travelex Ltd v FCT (2010) 241 CLR 510 at 535-536 (Bell and Crennan JJ).

96

Cominos and Dwyer II, n 1 at 77, 79; Cominos, n 1 at 70-71.

97

Of course, the mere fact the Constitution recognises that customs and excise duties can deal with multiple “subjects” of taxation implicitly recognises the possibility that a single “category” or “species” of indirect tax can, at the same time, deal with many disparate “subjects” of taxation. Indeed, it seems to this author, what excise and custom duties were to the 19th century, the GST is to the 21st century, namely, a “form” or “species” of indirect tax imposed on a number of disparate subjects of taxation.

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any tax bill from “tacking” together two or more subjects of taxation. If a new “category” or “species” of tax legislation emerges which combines two or more “subjects” of taxation, it is unconstitutional.98 To further appreciate why this must be the case, suppose the Commonwealth, drawing inspiration from the legislatures of 150 foreign countries, developed the novel idea to create a broad-based “category” or “species” of direct tax by tacking together “inefficient” State taxes, such as a hearth tax, a property tax, a gift duty, various forms of inheritance tax such as estate and succession duties, and a land value tax together (Propositions 2, 8 and 30) into a new “kind” of “hybrid supertax”. They do this by imposing a 5% tax on “taxable valuations”, which is defined as “any form of taxable valuation whatsoever” (the collective name given to the group of distinct subjects: Proposition 7). “Valuations” is then defined as follows: (a) the value of any fixture or structure annexed to any parcel of land owned by any person; (b) the unimproved value of any parcel of land owned by any person; (c) the total value of all property a deceased predecessor had owned at any time within a period of one year before their death and inherited by any person, the successor; (d) the value of any gift without consideration given from one person to some other person; and (e) any two or more matters listed in (a) to (d) above. Suppose these foreign legislatures call this new broad-based “category” or “species” of tax “Valuations Tax” (VT). However, the Australian Parliament calls the tax “A New Tax System – Land and Inheritance Tax” (LIT) with only “valuations” over $1,500 dollars being hit with the tax. Assume further that the main object of the tax happens to be the wealthy, and the tax is imposed annually through self-assessments, albeit there are some special rules for some matters, like inherited property, which is only factored once into calculating the tax liability.99 Suppose just over half of the Australian Senate opposes a tax on land and tax on gifts, but a large majority of the Senate strongly supports a tax on all forms of inherited property (with the Senate being lukewarm about a tax on fixtures). Nevertheless, suppose, like with the GST, the LIT narrowly passes in the Senate because the government of the day manages to put in certain exemption sweeteners for charitable and educational institutions insofar as the tax applies to land, and then pressures the cross-benchers to pass the tax despite their concerns that the tax violates s 55 of the Constitution. If “subject” of taxation is rewritten to read “category” or “form” of taxation, then s 55 would plainly allow the very thing it was designed to prevent, namely, that the Senate would be forced to take the good, the bad and the ugly (Propositions 1-2). After all, in substance, a LIT would involve “tacking” together tax proposals of different kinds into a single measure, including a direct tax on fixtures, a direct tax on land, a direct tax on any inherited property, and a direct tax on gifts. In substance, this would traditionally amount to a tax on four distinct subjects of taxation (cf Propositions 2, 8, 20, 30), despite in form being presented as a single “category” or “species” of taxation called VT or LIT.100 Thus, the mere fact a tax may be a well-recognised “category” or “form” of taxation does not necessarily mean it also deals with only one “subject” of taxation; otherwise the ability of the Senate to protect the States from financial aggression on behalf of the Commonwealth 98 It is probably for this reason the federal Parliament could not impose an “Estate and Gift Tax” in the form of a single tax bill: Estate and Gift Duties Act 1955 (NZ); Estate and Gift Duties Act 1968 (NZ); cf Gift Duty Assessment Act 1941 (Cth); Estate Duty Assessment Act 1914 (Cth). Nor could Parliament impose a “Land and Income Tax” in the form of a single tax bill: Taxation Act 1884 (SA); Land and Income Tax Act 1895 (NSW); Land and Income Tax Act 1916 (NZ); Land and Income Tax Act 1923 (NZ); cf Land Tax Assessment Act 1910 (Cth); Income Tax Act 1915 (Cth). Nor could the Parliament impose a “Customs and Excise Tax” in a single tax bill: Customs and Excise Act 1996 (NZ), which clearly violates the second paragraph of s 55, which it requires customs and excise duties be contained in separate taxing acts. 99 Thus, if a person believes, via self-assessment, that they happen to have owned in the previous year $800,000 worth of land (5% x 800,000 = $40,000); and $35,000 worth of fixtures annexed to that land (5% x 35,000 = $1,750); and they happened to have received in the previous year a $300,000 inheritance (5% x 300,000 = $15,000); and they have transferred a gift worth $30,000 to someone (5% x 30,000 = $1500), then their aggregate LIT (or VT) tax liability would be $58,250. 100

Obviously, “valuations” is not the subject of taxation. Just as the verb “supply” invites us to ask “supply of what?”, the verb “valuation” invites us to ask “the valuation of what?” The term is meaningless without a subject which fills in the blank and, obviously, the “subject” of a valuation might be as varied as the “subject” of any supply. Thus, just like the making of a supply in the indirect tax context is a condition precedent required to impose GST in the indirect tax context, in the direct tax context the making of a “valuation is a condition precedent to the imposition of a tax. The law which provides for the imposition and collection of a tax must also include valuation”: Offıcial Record of the Debates of the Australasian Federal Convention, Melbourne, 8 March 1898, p 2056 (Edmund Barton).

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would effectively be wiped away by any Machiavellian economist who devises some clever way to combine disparate taxes together into a new omnibus “category” or “species” of taxation. Melding together four narrowly based direct (or in case of the GST several indirect) taxes into a conglomerate “species” or “form” of “supertax” simply by grouping a number of distinct subjects together and giving a collective name to a group (cf Proposition 7) does not change the fact that, in substance, the tax is still a law dealing with four different subjects of taxation. To claim otherwise would allow the Commonwealth to override the s 55 mandate of the Constitution by disguising the real nature and effect of its enactments through clever drafting devices. The real nature and effect of the GST is to tax goods. Its real nature and effect is to tax services. Its real nature and effect is to tax State imposts, and so on. In short, while Parliament is free to create any tax ingenuity it may devise, any such tax so devised must always be subject to any express or implied limitations prescribed by the Constitution itself. In any event, neither bicameral, let alone unicameral, legislatures elsewhere have had to consider any of 35 propositions set out above when drafting their tax regimes, and therefore they operate on a different analytical framework to that of the Australian Constitution. Indeed, blindly reciting international precedent simply begs the question whether these foreign jurisdictions have found a creative way to “tack” together disparate kinds of taxes together, and whether these foreign legislatures thought of their GST legislation as a unit, or as a collection of matters necessarily distinct and separate. Furthermore, common understanding and general conceptions might differ across countries, meaning that what might appear to be a single subject to a Canadian might not appear so to an Australian, and the political relations between a bicameral legislature with an elected Upper House might differ substantially from some post-Asquithean legislature with an unelected Upper House. In fact, if anything, international precedent ought to invite damaging admissions: the tax regimes of some of the countries mentioned above would clearly run afoul of a number of other requirements found in s 55 of the Constitution,101 which suggests the GST tax regimes found elsewhere should, at best, be taken with a grain of salt when assessing the constitutional validity of the Australian GST regime. Indeed, one only has to look at India as a more recent example to see that the GST can be characterised as effectively “tacking” together proposals relating to taxation of different “kinds” – including duties of excise and services tax – into a centralised tax measure.102 But surely the modern 101

In many ways, the GST regimes in other foreign jurisdictions exemplify exactly what s 55 was designed to prevent: Excise Tax Act, RSC 1985 (Canada), Pts II-III, IX combines a duty of excise with a telecommunications services tax and GST on the sale of real property, which clearly violates the requirement under s 55 that laws imposing excise deal with duties of excise only. A tax on services and a tax on real property is obviously not a tax on goods. At one point the Canadian GST also recognises that “taxable supplies” is actually imposing taxes on different kinds of subject matters, see, for example, Excise Tax Act, RSC 1985, s 212, “Tax on Importation of Goods” and s 217, “Tax on Imported Taxable Supplies”, which is further delineated into s 220.05, “Subdivision A: Tax on Tangible Personal Property” and s 220.08, “Subdivision B: Tax on Intangible Property and Services”. See also Goods and Services Tax 1985 (NZ), s 2, which defines “goods” to include real property, a deeming provision which would be instantly fatal in the excise context by virtue of Proposition 35, given it prevents deeming one subject of taxation (such as goods) to be another subject of taxation (such as realty). See also Value Added Tax Act 1994 (UK), Sch 4, s 4, which deems an interest in land, such as a fee simple or a long-term lease to be a supply of goods, again contrary to Proposition 35; Sch 8, Pt 1, which groups together 16 zero-rated topics according to “subject matter”, including books and newspapers (Group 3), realty (Group 5), and imports (Group 13). Were it not for the fact they were otherwise exempt, all of these disparate “subject matters” would look suspiciously like excise duties on newspapers, custom duties on imported goods and other taxes on other subjects being tacked together into an omnibus tax bill (a United Kingdom style VAT on books, newspapers and imported goods would, in Australia, all be imposed under a separate Excise or Customs Imposition Act). Of course, it goes without saying that unitary states like New Zealand and the United Kingdom, as well as federal states like Canada, have an unfettered plenary power to “tack” together in whatever way they please any number of disparate taxes (excises include) in order to generate the broadest possible tax base. This itself suggests the prevalence of VAT or GST in other legislatures with weak (or otherwise non-existent) Upper Houses should be given little weight, since these legislatures frequently ignore the sort of finely wrought checks and balances found within the federal Australian Constitution. 102

Mukhopadhyay S, “Time to Move Forward with a New GST Model”, Business Standard (25 August 2014) p 14: “Central Excise, additional excise duties, service tax, and all cess and surcharges will be subsumed into the central GST” (emphasis added); Ernst and Young, Worldwide VAT, GST and Sales Tax Guide (2013) pp 337-338: “The GST is intended to subsume most of the central and state level indirect taxes currently in force” (emphasis added); Singh R, Indian Economy Civil Service Examinations (McGraw Hill, 2010) at [20.5]: “The taxes to be withdrawn or merged into GST are: Central Taxes: CENVAT, Service Tax, Sales Tax and Stamp Duty. State Taxes: State excise, sales tax, entry tax, lease tax, works contract tax, luxury tax,

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practice of bundling different “kinds” of indirect taxes together under a “conveniently vague umbrella term”103 like “supply” does not change the substance of what is going on, namely, that the underlying GST tax base consists of a chaotic vista of distinct and separate subject matters. Indeed, the very fact that in Australia, like in India, the GST Act was advertised as “a new tax system – in other words, as a grouping of taxes across a wide area”104 and “not just a bill to amend the tax law, but to create an entire new system embracing several forms of tax law”105 should raise a number of alarm bells from the perspective of s 55, given that: We cannot fail to remember the Constitution designed the Senate to be a House of greater power than any ordinary second chamber. Not only by its express powers, but by the equality of its representation of the States, the Senate was intended to be able to protect the States from aggression. And from no source could aggression be more dangerous than from measures of finance when unjustly bound together.106 I return to the strong connection between sec 51(ii) and sec 55. Both of them are in a form devised for the protection of State interests … They are checks on a Parliament primarily intended to exercise great legislative powers with a due regard to those interests.107

However, in framing the GST Act the executive government in 1999 failed to pay “due regard” to various State interests. This is because the GST Act has in substance, although not in form, bound together an unprecedented federal services tax with a controversial a tax on a tax – both of which were specifically viewed as an act of aggression by a number of Senators from smaller States like Queensland, Tasmania and Western Australia – with a number of anodyne, formerly indirect State taxes on various financial and realty transactions. As will be seen below, this disabled the Senate from watering down even further the more regressive impact of the GST on tourism services, and various other State imposts like the fire services levy. Secondly, it is irrelevant that right now in 2014 one might regard the GST as dealing with a single subject of taxation. Rather, what must be examined is whether the GST was generally understood to deal with “one subject of taxation” either back in 1999, when the GST Act was first enacted, or back in 1900, when the Constitution was first adopted. Thus, what is relevant legally is whether the people back in either 1999 or 1900, not in 2014 or 2015, would have fairly regarded the GST as imposing a tax on a single subject of taxation (Propositions 31-32). Finally, the GST Act does not become unconstitutional simply because it is possible to draw “analytical” or “logical” distinctions between the different forms of “supply” prescribed in s 9-10 of the GST Act (Proposition 2). Rather, the High Court will probably need to look at whether the executive government was abusing the constitutional constraints imposed on the Senate; whether there are special federalism or other distinct policy issues which make the matters listed in s 9-10 octroi, turnover tax and cess” (emphasis added); Joshi SP, “GST and Taxation Reform in India”, Australian Business News (online) (14 March 2012): “It integrates the federal excise duties, customs duties, service tax and state VAT into a single point levy, ie GST” (emphasis added); Organisation for Economic and Co-operative Development, Consumption Tax Trends 2008 VAT/GST (2008) pp 13, 114: “The Indian Government announced its intention, in partnership with the States, to merge all taxes like Services Tax, Excise and VAT into a nation-wide Goods and Services Tax (GST) by 2010” (emphasis added); Schenk A, “Radical Tax Reform for the 21st Century: The Role for A Consumption Tax” (1999) 2 Chapman Law Review 133 at 137, 139: “During the last several decades of the twentieth century, the most dramatic change in tax systems around the world has been the conversion of turnover and other national sales taxes to value added taxes” (emphasis added). But surely these frank and open admissions of merging together different “kinds” of indirect taxes (including duties of excise) into a new species of supertax cannot override the express constitutional mandate faced by the Australian Parliament, namely, that laws imposing taxation deal with one subject of taxation only: Cominos and Dwyer II, n 1 at 72. 103

Cominos and Dwyer II, n 1 at 72, 76.

104

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4264 (Andrew Murray).

105

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4266, 4268 (Peter Cook).

106

Osborne v Commonwealth (1911) 12 CLR 321 at 353 (Barton J); Buchanan v Commonwealth (1913) 16 CLR 315 at 328-329 (Barton J). Note that not even the United States Constitution has anything like a s 55 analogue: Lane, n 24, p 274.

107

Buchanan v Commonwealth (1913) 16 CLR 315 at 329-330 (Barton J). Recognition of the States as the protector of State interests can be seen in Victoria v Commonwealth (1975) 134 CLR 81 at 169 (Stephens J) and Western Australia v Commonwealth (1975) 134 CLR 201 at 246-247 (Gibbs J).

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necessarily separate and distinct (Propositions 1-2, 9, 10, 25-26), and what the ordinary meaning of the word “supply” happens to be (Propositions 27-29). However, let us first dispose of the myth that “final private consumption” is the one subject of taxation for the purposes of s 55.

Is “final private consumption” the single subject of taxation for the purposes of s 55? In 2003, Hely J rejected a claim that the GST Act violated the “one subject of taxation” limit found in s 55 of the Constitution, claiming that: There is, as the report of the Asprey Committee confirms, a common understanding as to the nature of a broadly based goods and services tax. That is reflected in the Explanatory Memorandum for A New Tax System (Goods and Services Tax) Bill 1998 (p 5): “Broadly speaking, the GST is a tax on private consumption in Australia. The GST taxes the consumption of most goods, services and anything else in Australia, including things that are imported”. … In the present case, Parliament has, according to common understanding and general conceptions, imposed a tax on a single subject of taxation, namely, on final private consumption in Australia. That is one subject of taxation for the purposes of s 55 of the Constitution.108

This conclusion, with all due respect, is erroneous. Indeed, not even the executive government attempted to characterise the GST in this way when it was forced to fend off s 55 criticisms of the GST in the Senate,109 and for good reason. First, it is generally accepted that the GST is an “indirect tax”.110 However, a “true blue” tax on either the act of consumption or final consumption expenditures would be a direct rather than an indirect tax.111 This is because a direct tax is one which is demanded from the very persons who are required to pay the tax (Proposition 15), meaning a tax on consumption would be levied not on the producer or supplier of any perishable good or service. Rather, it would be levied immediately on the consumer at the point of consumption itself, or on the value of the actual funds used by consumers to purchase various goods and services at the supermarket. When consumers are at the checkout counter, they must pay the tax there and then, or else they would be required to file tax returns and make payments of any consumption expenditure incurred; and both instances would use a version of the existing income tax system as a starting point for computations. Obviously, unlike a seller or supplier, consumers cannot shift any of these types of taxes onto someone else since generally there is no question of further resale after purchase of the goods or services in question.112 But the GST is generally understood as being an indirect tax precisely because the making of a supply by suppliers generates a GST liability, thereby prompting suppliers to offset GST on goods or services in order to indemnify themselves at the expense of the general consumer (Proposition 15). This is precisely how the Explanatory Memorandum anticipated that the GST would operate: GST is a tax on a supply or importation of anything (goods, services or anything else). GST is remitted by suppliers who make supplies in carrying on their enterprise. A thing can attract GST each time it is 108

O’Meara v FCT (2003) 128 FCR 376 at 382 (Hely J); 52 ATR 437; see also Pulle B, “ANTS (GST) Bill 1998 – Any Section 55 Constitutional Issues?”, Current Issues Brief No 14 (8 June 1999) pp 9-13.

109

See Brysland G, “Interchase to Kurc – the Australian GST Cases So Far” (2004) 4 Australian GST Journal 149 at 151. Others, however, have argued that Hely J came to the right conclusion, albeit for completely the wrong reasons: Hill, n 93 at 24.

110

HP Mercantile Pty Ltd v FCT (2005) 143 FCR 553 at 557, 569 (Hill J); 60 ATR 106; LeasePlan Australia Ltd v DFCT (2009) 74 ATR 33 at [8] (Middleton J); Pape v FCT (2009) 238 CLR 1 at 28 (French CJ): “indirect taxes such as VAT or excises.”

111

At least as the concept of a direct and indirect tax is used in the ss 55 and 90 context: Atlantic Smoke Shops Ltd v Conlon [1943] AC 550 at 563, 566-567 (Viscount Simon); Cairns Construction Ltd v Saskatchewan [1960] SCR 619 at 625 (Martland J); Tobacco Tax Case (1974) 130 CLR 177 at 230-232 (Stephens J); Philip Morris Ltd v CBF (1989) 167 CLR 399 at 468 (Dawson J). Real consumption taxes would not attach to particular purchases of goods or services. The tax liability falls directly on individuals, with the tax liability being clearly visible to the public eye. For discussions involving a direct tax on expenditure or personal cashflows, see Escolano J, “Taxing Consumption/Expenditure Versus Taxing Income” in Shome P (ed), Tax Policy Handbook (IMF Publishing, 1995) pp 50-54; Pechman J, Federal Tax Policy (Brookings Institution, 2001) pp 208-210; Kennedy MJ, Public Finance (Phi Learning, 2012) pp 130-131; Hall R and Rabushka A, The Flat Tax (Hoover Institution 2007) pp 1-100. 112

Atlantic Smoke Shops Ltd v Conlon [1943] AC 550 at 566-567 (Viscount Simon).

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Spadijer supplied or imported along the commercial chain to its final consumption in Australia … Suppliers do not bear the GST because the tax is included in the price of what they supply.113

This part of the Explanatory Memorandum is clearly inconsistent with the proposition that the GST is a direct tax levied at the point of final consumption itself, or a direct tax on final private consumption expenditures; that is, a tax levied on the value of the actual cashflows or funds – the aggregate monetary expenditure – used by consumers every time they happen to purchase various goods or services. But it is entirely consistent with the idea that the GST “applies generally to transactions relating to goods or services; it is proportional to the price of those goods or services; it is charged at each stage of the production and distribution process; and, finally, it is imposed on the added value of goods and services, since the tax payable on a transaction is calculated after deducting the tax paid on the previous transaction”.114 In other words, the GST is an indirect tax levied proportionately to the value of goods, services and other disparate subjects of taxation levied at the point of supply, well before those goods or services reach the hands of the final consumer. As a result, it might not come as a surprise to learn the GST is, in fact, an excise115 insofar as it is an indirect tax on the value of goods imposed at some step in the manufacture, production or distribution of those goods.116 However, it has been often said excises do not include taxes on final consumption precisely because duties of excise are imposed well before any goods reach the hands of the final consumer, and therefore well before any act of consumption occurs.117 A consumption tax would therefore only be an excise if its substance actually indicated that it was a tax on goods.118 Pace Hely J, a separate Excise Imposition Act would only be necessary if goods constituted the subject of taxation which “attracts” the GST under the GST General Imposition Act. That is to say, if the GST were really a tax on final private consumption expenditure, or a tax levied at the point of final consumption itself, the GST would most likely not be an excise for the purposes of ss 55 and 90 of the Constitution. After all, different types of goods taxed – and not private consumption expenditure – is 113

Explanatory Memorandum to the GST Bill, p 6; FCT v DBR Funds Managements Ltd (2006) 152 FCR 437 at 441 (Ryan, Heerey and Edmonds JJ); 62 ATR 699.

114

ACP Publishing Pty Ltd v FCT (2005) 142 FCR 533 at 535 (Hill J); 59 ATR 98; HP Mercantile Pty Ltd v FCT (2005) 143 FCR 553 at 557 (Hill J), quoting Dansk Denkavit ApS v Skatteministeriet [1994] 2 CMLR 377 at 394-395; Case C-109/90 Giant [1991] ECR I-1385 at [11]-[12]; Case C-347/90 Bozzi [1992] ECR I-2947 at [12]; Banca Popolare di Cremona [2006] ECR I-9373 at [21].

115

A New Tax System (Goods and Services Tax Imposition – Excise) Act 1999 (Cth), s 3; Bevan, n 1 at 179-80.

116

Bolton v Madsen (1963) 110 CLR 264 at 271; Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 453-455 (Mason CJ, Brennan and McHugh JJ); Ha v New South Wales (1997) 189 CLR 465 at 490, 499 (Brennan CJ, McHugh, Gummow and Kirby JJ). A tax on goods imposed at the point of supply is, by definition, a tax on some step in the distribution of goods.

117

Parton v Milk Board (Vic) (1949) 80 CLR 229 at 261 (Dixon J); Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529 at 559 (Kitto J), 589 (Menzies J); Tobacco Tax Case (1974) 130 CLR 177 at 185-186, 193 (Barwick CJ), 209 (Menzies J), 221-224 (Gibbs J), 230-232 (Stephens J), 239, 243 (Mason J); Gosford Meats Pty Ltd v New South Wales (1985) 155 CLR 368 at 377 (Gibbs CJ), 412-414 (Dawson J); Cominos and Dwyer II, n 1 at 70; Commissioner for ACT Revenue v Kithock Pty Ltd (2000) 102 FCR 42 at 47-50 (Spender, Mathews and Sundberg JJ); 45 ATR 43. With the GST, few items are simultaneously supplied and consumed (electricity, a cup of coffee and some restaurant meals being obvious exceptions to the rule). Indeed, in the case of real property and durable goods there might often be a “significant timing difference” between the imposition of GST at the point of supply and any subsequent act of private consumption: Conrad R and Grozav A, “Real Property and VAT” in Krever R (ed), VAT in Africa (PULP, 2008) pp 81, 86-88; Cooper G, Why GST is Not a Consumption Tax … and Why it Matters, Paper Presented to the 2003 National GST Intensive, Taxation Institute of Australia (Manly, 10-11 October 2003) p 2; Conrad R, “The VAT and Real Estate” in Gills M, Shoup C and Sicat G (eds), Value Added in Developing Countries (IMF, 1990) p 95. Moreover, it has been correctly noted that the act of the purchase is not, strictly speaking, itself an act of consumption. Instead, consumption happens when the durable good is actually used: Wei Cui, “Conceptual Objections to Taxing Resale of Residential Property Under a VAT” (2012) 137 Tax Notes 777 at 779. 118

Tobacco Tax Case (1974) 130 CLR 177 at 194 (Barwick CJ). Murphy J has also taken the view that an excise tax is a tax on production of goods, meaning a tax on consumption is not an excise, unless the substance of the legislation indicates otherwise: Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599 at 638 (Murphy J); Gosford Meats Pty Ltd v New South Wales (1985) 155 CLR 368 at 388 (Murphy J); Capital Duplicators Pty Ltd v Australian Capital Territory (No 2) (1993) 178 CLR 561 at 615 (Dawson J); 27 ATR 1.

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the subject of taxation of a duty of excise (Proposition 14).119 In short, the very fact that Parliament believed the GST Act amounted to a duty of excise belies any claim that the GST is a tax on final private consumption expenditure, or a tax levied at the point of final consumption – or, for that matter, any subject matter which does not include goods amongst the wide variety of subjects being taxed by the GST Act.120 The GST is, at a minimum, a tax on goods. Secondly, consumption as a concept appears to be geared towards identifying the object of taxation, not the subject of taxation. When Parliamentarians referred to the GST as being a tax on consumption, they did so in the context of who will be enduring the burden of the tax, namely, various classes of consumers (such as the disabled, the poor, or working families more generally).121 Accordingly, popular reference to the GST as being a tax on consumption simply highlights the fact that consumers are the persons being taxed – they are the persons who will bear the burden or incidence of the tax. But s 55 is not concerned with who is being taxed (Proposition 16), or even who bears the burden (Proposition 17) or incidence of a tax (Proposition 27); it is concerned with what is being taxed. Thus, the fact suppliers act as tax collectors for the state122 by imposing GST on various subject matters,123 and then conveniently collecting the GST from the final consumer who happens to bear incidence of the tax – is simply an acknowledgement of the fact that the object of taxation (the persons who are being taxed) are consumers at large.124 119

See John Fairfax & Sons Ltd v New South Wales (1927) 39 CLR 139 at 142-143 (Isaacs J); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 454 (Mason CJ, Brennan and McHugh JJ); Roxborough v Rothmans Pall Mall Australia Ltd (2001) 208 CLR 516 at 528 (Gleeson CJ, Gaudron and Hayne JJ); 48 ATR 442.

120

For this reason, nor is value added the subject of taxation. Value added simply refers to the remittance system of collecting VAT, and not the intended tax base: Ecker T, A VAT/GST Model Convention (IBFD, 2013) pp 116-117. For that reason, a number of modern VAT systems have adopted the name “Goods and Services Tax” to better reflect the tax base of the VAT, as opposed to the taxes remittance method: Krever R and de La Feria R, “Ending VAT Exemptions: Toward a Postmodern VAT” in de la Feria R (ed), VAT Exemptions: Consequences and Design Alternatives (Wolters Kluwer, 2013) pp 3, 6. In any event, the economic consequences or mechanisms to secure the collection of a tax are not concerns to which s 55 is directed (Proposition 29); and even if they were, the GST is not really a pure VAT from an economic viewpoint since GST extends to capital transactions: Cominos and Dwyer II, n 1 at 69; see also Head J, Australian Tax Reform in Retrospect and Prospect (Australian Tax Research Foundation, 1989) pp 380-381. In fact, nothing in the text of the GST Act requires GST to be imposed on the “unit profit”; that is, the difference between the sale price and the production cost of a product; in the case of land, GST would substantially overtax the true value added of the supply involved. 121 Commonwealth, Parliamentary Debates, House of Representatives, 1 April 1998, pp 2294-2295 (Stephen Smith): “A tax on consumption, a tax that would basically move towards taxing those who consume most” (emphasis added); 12 November 1998, pp 334-336 (John Murphy): “It is a regressive tax on consumption” (emphasis added); 9 December 1998, p 1772 (Peter Andren): “The GST is a bottom-up, regressive tax on consumption of goods and services. It will impact on those least able to pay, with inadequate and unsustainable compensation”; 13 May 1999, p 5345 (Wayne Swan): “It does not take an economist to see that the GST is a tax on consumption. Families by their nature consume most, if not all, of their income, and it will be families who will be hit hardest by the GST … So the GST puts extra pressure on families” (emphasis added); 9 June 1999, p 6623 (Wayne Swan): “It does not take an economist to see that the GST is a tax on consumption. Families by their very nature consume the most, and it will come as no surprise that the GST will hit them the hardest. The tax package shifts more of the tax burden onto low and middle income earners and families” (emphasis added); 22 June 1999, p 7009 (Wayne Swan): “By definition a GST is antifamily because it is a tax on consumption and families are very big consumers. Their consumption is not discretionary”; September 1999, p 11058 (Wayne Swan): “A tax on consumption punishes those people who consume all their income. Who consumes all their income? Families consume all their income” (emphasis added). Commonwealth, Parliamentary Debates, Senate, 20 April 1999, p 3904 (Barney Cooney); 25 November 1998, p 676 (Barney Cooney). The Explanatory Memorandum to the GST Bill, pp 5-6 also uses various qualifiers when describing the GST as a tax on consumption. It does not say the GST is actually a tax on final private consumption expenditure. Rather, GST mimics such a tax: GST is “effectively” or “broadly speaking” a tax on final private consumption, apparently because “the GST is borne by consumers when they acquire anything to consume” (emphasis added). 122 See Gaston Schul [1982] ECR 1409 at [10]; Elida Gibbs [1996] ECR 1-5339 at [19], [22]-[23]; Commission v Germany [2002] ECJ 1-8315 at [29]; Netto Supermarket [2008] ECR 1-771 at [21], quoting Balocchi [1993] ECR I-5105 at [25]; Banca Popolare di Cremona [2006] ECR I-9373 at [22], [28]. 123

Be it various types of goods taxed under the GST Excise Imposition Act (with the subject of taxation here being the various item being taxed: Proposition 14), or services, States taxes etc, which are taxed under the GST (General) Act.

124

For an economist, a customs duty might be described as a tax on final private consumption because the burden of the tax falls on the final consumer. In fact, the recognition that the object of a customs duty is the consumer is hardly new: Hamilton A,

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Indeed, a simple everyday example can be used to demonstrate that the imposition of GST operates completely independently from the act of private consumption, or from final private consumption expenditure.125 Suppose one enters a supermarket. Suppose one refuses to spend any money purchasing anything. Yet, notice that the GST “sticks to” (that is, is charged on) various goods or services, despite the fact no private consumption expenditures have been expended and despite the fact no act of private consumption has occurred. Thus, GST is called GST precisely because it is imposed on, well, goods and services. GST is best characterised as being not a tax on final private consumption expenditure, but an in rem tax on goods or services when the price of any goods or services is rendered for a consideration at the point of supply. After all: The VAT as applied is not really a tax on consumption in any economic sense. In fact … the VAT is not even a tax on consumption expenditure by real relative prices of both market and nonmarket goods and services. Consumption for economic purposes is defined as a flow. Housing, cars, light bulbs, and even canned green beans are stocks, not flows, and thus any such purchase is really an investment decision unless consumed immediately.126 From a technical standpoint, the legislation does not in any sense operate by focusing upon or taxing private consumption … and one might have doubted that it would be necessary to consider this as providing the subject of taxation (save to note that it carries a clear and accurate admission that GST is an “indirect tax” on a broad variety of subject matters).127

Furthermore: When tax designers speak of a tax on final consumption, they mean a tax that is not borne by the intermediate businesses that produce goods and services which individuals consume … The final consumption tax, in contrast with the turnover tax, imposes no net tax on intermediate businesses. The entire tax burden lands on the final consumer only.128 It is an indirect tax, the burden of which is intended to fall on final private consumption in Australia and as such it is intended to exhibit both internal and external neutrality. The burden of the tax is not intended to fall on businesses and the law presumes that the tax imposed on suppliers will be passed on in the prices charged to consumers.129

But, again, the economic consequences or incidence of the GST are not the considerations to which s 55 is directed (Propositions 16, 27). Indeed, a tax, like a duty of excise, might very well fall onto many disparate subjects of taxation like tea, sugar, books etc, and yet still deal with a single object of taxation, namely, the final private consumer who just happens to bear the burden or incidence of a duty of excise. Thirdly, for the purposes of s 55, the subject of taxation must be found amongst the prescribed criteria of liability found in the text of the tax statute being challenged (Proposition 21). However, “final private consumption” is a phrase which does not even appear in the text of the GST Act. Indeed, as the High Court has unanimously observed, consumption is not even a necessary precondition needed to generate a GST tax liability: Federalist No 35, reprinted in Rossiter C (ed), The Federalist Papers (Signet Classic, 2003) p 208: “The maxim that the consumer is the payer is so much oftener true than the reverse of the proposition.” But that does not change the fact that the subject of the tax is the specific “type” of commodity or “item” being taxed: cf Proposition 14 above. 125

Expenditure here means the actual funds – the aggregate expenditure flows – used by consumers to purchase goods or services themselves, however assessed, measured, or calculated.

126 Conrad R, “Commentary” (2010) 63 Tax Law Review 471 at 473. For this reason it is simply incorrect to claim the GST is an indirect tax on consumption expenditures, as claimed by Ecker, n 120, p 85. Ideally, GST ought to be a tax on flows. But in practice the GST is usually a tax on the corporeal stock of something. Thus, all the theoretical talk about the neutrality results regarding the VAT may not apply to the VAT in practice. 127

Cominos and Dwyer II, n 1 at 78-79. Of course, if the GST really were a tax on consumption expenditure one would have thought the States could be imposing their own GST, given an indirect tax on consumption expenditure is clearly different from an indirect tax on goods.

128

Krever R, “Designing and Drafting VAT Laws for Africa” in Krever, n 117, p 10 (emphasis added).

129

Millar R and McCarthy D, “Australia” in Ecker T, Lang M and Lejeune I (eds), The Future of Indirect Taxation: Recent Trends in VAT and GST Systems around the World – Australia (Kluwer Law, 2012) pp 21, 26 (emphasis added).

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Is the GST unconstitutional? Some s 55 problems revisited In economic terms it may be correct to call the GST a consumption tax, because the effective burden falls on the ultimate consumer. But as a matter of legal analysis what is taxed, that is to say what generates the tax liability (and the obligations of recording and reporting), is not consumption but a particular form of transaction, namely “supply”.130

Furthermore, while the principle of fiscal neutrality is regarded as part and parcel of European-style tax on final private consumption, fiscal neutrality has no function in the interpretation of the Australian GST precisely because: What lies behind the enactment of a taxing provision as a matter of public policy or economic theory is not the same thing as the elements or criteria of tax liability which Parliament has laid down.131

In short, final private consumption is not part of generating a GST tax liability. Rather, it is the supply of goods, services, real property, transfer of intangible rights, and financial supplies etc, which forms part of the prescribed criteria of liability found in the text of the GST Act, and it is somewhere amongst this criteria that the subjects of taxation must be found (Proposition 21). After all, one does not need to go beyond the text, including the title, of a land value tax to know that it is a tax on land values; or that of an income tax to know it is a tax on income. The same can be said of a wartime profits tax, which is obviously a tax on wartime profits, or a fringe benefit tax, which is obviously a tax on fringe benefits.132 Indeed, if the GST really was a tax on final private consumption, levied directly on consumption expenditure flows, or at the point of consumption, Parliament could easily have said so, either in the title or the actual text of the GST Act.133 But it has not done so. Thus, the validity of the GST Act, like all other taxes challenged under s 55, must largely stand or fall on the 130

Sterling Guardian Pty Ltd v FCT (2006) 149 FCR 255 at [15] (Heerey, Dowsett and Conti JJ); 62 ATR 119, cited approvingly in FCT v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 at [3], [5] (Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ); 68 ATR 158; Travelex Ltd v FCT (2010) 214 CLR 510 at [64] (Crennan and Bell JJ); FCT v Gloxinia Investments Ltd (2010) 183 FCR 420 at 427 (Dowsett, Kenny and Middleton JJ); 75 ATR 806. 131

TSC 2000 Pty Ltd v FCT (2007) 66 ATR 945 at 957; Electrical Goods Importer v FCT (2009) 74 ATR 982 at 993-994, quoting WR Carpenter Holdings Pty Ltd v FCT (2007) 161 FCR 1 at 8 (Heerey, Stone and Edmonds JJ); 66 ATR 336.

132

It should be noted that there is a complete disconnect between the headline concept of the Goods and Services Tax – General Act and its actual contents. Traditionally, the title of a piece of tax legislation was faithful to its contents: see, for example, Osborne v Commonwealth (1911) 12 CLR 321 at 333-335 (Griffith CJ), 372 (Higgins J). However, the title of the GST Act is misleading for two reasons. First, given the broad definition the High Court has given to duties of customs and excise, the excise and custom statutes probably “cover the field” in respect to goods: Bevan, n 1 at 181. If so, there is no goods tax in the Goods and Services Tax – General Act since the taxation of goods is funnelled or excised out into separate excise and customs imposition acts. The taxation of goods emanates the latter two statutes, not the GST General Act. Secondly, it might be worth noting that, in the United States, of the 43 states which have a general single subject rule, 40 also have a title provision: Osborne v Commonwealth (1911) 12 CLR 321 at 363 (Isaacs J); Denning B and Smith B, “Uneasy Riders: The Case for a Truth-in-Legislation Amendment” (1999) Utah Law Review 957 at 1005-1023. By this metric, the GST is clearly unconstitutional, for it is much more than just a residual services tax: it is also an indirect tax on real property, financial supplies, and State taxes. Indeed, given legislators rarely read in entirety the bills they pass, an accurate title requirement plays a prominent role in enhancing transparency: Ruud MH, “No Law Shall Embrace More than One Subject” (1958) 42 Minnesota Law Review 389 at 392: “The primary purpose of the title requirement is to prevent surprise and fraud upon the people and the legislature”. Yet everyday citizens are often surprised to learn that s 81-5 of the GST Act imposes a tax on a tax: Economic Legislation Estimates Committee, Parliament of Australia, Canberra, 9 June 1999, pp E367-E370 (John Murphy): “What do the payment of a tax and purchase of a good or service have in common?”; Heckler, “Taxing the Taxes”, The Sydney Morning Herald (14 June 2011) p 18: “Second, why am I paying GST on the fire and emergency services levy? GST stands for goods and services. The levy is certainly not a physical thing so I presume it is not a good. It is certainly not a service”; Letters to the Editor, “Unjust Tax on a Tax”, Daily Telegraph (29 September 2012) p 44. The complete mismatch between the title and contents of the GST Act is yet another thing which distinguishes the GST from all other taxes challenged under s 55. Indeed, the title might more accurately reflect its actual contents if it were renamed “A New Tax System – Services Tax, Real Property Transactions Tax, Financial Transactions Tax, Rights Transfer Tax, Contracts Tax and State Imposts Tax”.

133

At least one commentator has noted that the lack of any overriding textual mandate to interpret the GST as a consumption tax might have been thought to weaken the characterisation of the GST as being a tax on final private consumption: Millar R, “Constitutional Validity of Australian GST Upheld” (2003) 14 International VAT Monitor 257 at 258-259. Indeed, the present writer is not aware of a single s 55 case where the High Court has had to go beyond the text and turn to extrinsic materials in order to locate the subject of taxation. But it seems that even if the GST Act did say the GST was a tax on consumption, this would describe not the subject of taxation, but simply the incidence or object of the tax, that is, whether a particular enterprise or class of tax payer would be liable to pay the GST to the government.

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common meaning and general understanding of the language and terms used in the statute imposing taxation. Indeed, all the s 55 cases involve a forensic analysis of the language found in the taxing statute being impeached (Propositions 21, 27-29). Fourthly, even if it were permissible for the purposes of s 55 to characterise elements of the GST Act based on its economic consequences or incidences (which it mostly certainty is not: Proposition 27), there are other compelling reasons to believe that the GST Act introduces subject matters that go beyond final private consumption in Australia. In particular: (1) Because the GST is buried in the price of various business inputs, the GST Act allows enterprises to reclaim any costs the GST adds to producing and distributing the subject of its ultimate supply (that is, the GST Act provides for input tax credits). Private consumers, of course, cannot claim such credits because they only consume outputs, but enterprises can, precisely because the GST is buried in various inputs. Viewed in this light, the GST is as much a tax on production (commercial inputs) as it is a tax on private consumption (commercial outputs).134 Furthermore, even if it were permissible to characterise the subject of taxation based on the object or incidence of a tax, then one can argue the GST is also a tax on production. This is because although most of the GST burden will certainly fall on the final consumer (therefore making final private consumption the first subject of taxation), some of the tax burden might also fall on the producer because of various structural impediments to price increases and varying elasticity in the various markets for outputs, therefore making the GST a tax on production or even business profits (the second subject of taxation).135 (2) Section 81-5 of the GST Act deems the payment of State taxes, charges and fees to constitute a supply made for consideration. But payment of fees or taxes for various public services, at best a form of final public consumption, is distinct from, indeed the antithesis of, final private consumption. (3) The definition of “financial supplies” is broad enough to capture the use of foreign currencies, which are used outside Australia.136 Thus, the GST is not limited to final private consumption which takes place inside Australia (the main subject of taxation), but outside Australia as well (another subject matter of taxation). To be sure, points 2 and 3 above might be circumvented by defining the subject of taxation to be all forms of consumption, whether public or private, and irrespective of whether that consumption occurs inside or outside Australia. However, this argument can be rebutted by pointing out that the GST taxes things which cannot even be consumed. The most obvious example is land transfers, which appears not to be final private consumption expenditure even for national accounting purposes: The VAT is supposed to be a tax on flows. Land is a stock, and transfer of that stock should not be liable to VAT. Such transfers frequently are liable to other taxes such as capital transfer taxes or stamp duties. The purchase of land is not a consumption expenditure in the usual sense since nothing is taken out of gross national production.137

It was perhaps for this reason that Gleeson CJ made the following observation about the GST: GLEESON CJ: It might be colloquially described as a broad-based consumption tax, but the definition of supply makes it plain that it goes beyond consumption. MR ROBERTSON: Yes, and, indeed, although it is called a goods and services tax, the definition makes it clear that it goes beyond goods and services as separately dealt with under, say, the English law in one 134

Cominos and Dwyer II, n 1 at 76. Courts have frequently drawn a distinction between output tax payable as a result of a taxable supply and input tax credits resulting from any acquisitions: ACP Publishing Pty Ltd v FCT (2005) 142 FCR 533 at 535-537 (Hill J); HP Mercantile Pty Ltd v FCT (2005) 143 FCR 553 at 553, 564-565 (Hill J); Admin Service Centres Pty Ltd v FCT [2013] FCA 1123 at [33], [37] (Edmonds J); Lex Services PLC v CEC [2004] 1 All ER 434 at [26] (Lord Walker of Gestingthorpe). Thus, the GST also allows for a selective refund tax scheme because some buyers get refunds or credits.

135

Dwyer T and Larkin T, “The GST Package: Getting to the Bottom Line” (1992) 21 AT Rev 221 at 225-227; Schmidt P, Konsumbesteuerung durch Mehrwertsteuer (Erich Schmidt, 1999) p 101; Ebrill L, Keen M and Summers V, The Modern VAT (IMF Publishing, 2001) p 15; Cooper G and Vann R, “A Few Myths about the GST” (2003) 23 UNSW Law Review 252 at 253.

136

Travelex Ltd v FCT (2009) 178 FCR 434 at [55] (Stone J); 73 ATR 463.

137

Tait A, Value Added Tax: International Practice and Problems (IMF, 1988) pp 80-81.

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Is Gleeson CJ correct? The question can be answered via Proposition 29 above, that is, a popular dictionary can be used to determine the common understanding of a phrase like final private consumption. “Private final consumption” does not appear in the Macquarie Dictionary (3rd ed, 2001), but “consumption” certainly does: The act of consuming; destruction or decay; destruction by use; the using up of goods and services having an exchangeable value (economic term); the amount consumed.

“Consume”, in turn, is defined as follows: To destroy or expend by use; use up, to eat or drink up; devour or to absorb; engross.

In short, consumption implies destruction by use.139 However, the GST Act taxes subjects which have nothing to do with “consumption” as the word is ordinarily understood. For example: (1) Real property is broad enough to cover not only the creation of freehold and leasehold interests in land, but extends to licences, easements and options over, or in relation to, land.140 However, the specific grant, assignment or surrender of legal rights over a durable, indeed indestructible, natural resource like land is not normally described as an act of destruction (consumption). If anything, the act of granting new rights over land involves the very antithesis of destruction, namely, an act of creation (investment). Moreover, even if “consumption” is defined in its economic sense as the using up of goods and services having an exchangeable value, land would still not constitute consumption precisely because “in ordinary language, land is neither a good nor a service”.141 Land, after all, is not even an output which is consumed, and improvements to land are not always consumed. In fact, land in popular culture is generally perceived as being an investment: it acts as a hedge against inflation and forms a vital input needed for the establishment of any commercial enterprise.142 And so GST on real property transactions is really a tax on the future ownership or occupation, rather than consumption, of land. (2) Nor is an entry into, or release from, any commercial obligation like a restrictive covenant typically described as an act of decay or destruction. It is somewhat unnatural, if not altogether unheard of, to say one has devoured (that is, consumed) a restrictive covenant. Rather, it would be 138

Transcript of Proceedings, FCT v Reliance Carpet Co [2008] HCATrans 150 at 3327-3334. See also FCT v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 at [3] (Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ): “By way of contrast to the Australian system, counsel for the Commissioner referred to Art 2(1) of the first Council directive on the harmonisation of legislation of member states of the European Community concerning turnover taxes; this indicates that VAT is a general tax on the consumption of goods and services.”

139

Tobacco Tax Case (1974) 130 CLR 177 at 187 (Barwick CJ).

140

GST Act, s 195-1. Accordingly, real property goes beyond goes well beyond even mere proprietary (or equitable) interests and encompasses interests that are contractual, as well as purely personal interests which may or may not have arisen under contract: Saga Holidays Ltd v FCT (2006) 149 FCR 41 at 68, 77-78 (Conti J); 61 ATR 384; Sterling Guardian Pty Ltd v FCT (2005) 60 ATR 502 at 513 (Stone J); Saga Holidays Ltd v FCT (2006) 156 FCR 256 at 266 (Stone J); 64 ATR 602; FCT v American Express Wholesale Currency Services Pty Ltd (2010) 187 FCR 398 at 433 (Kenny and Middleton JJ); 77 ATR 1. A licence to occupy land is not a proprietary right (Cowell v The Rosehill Racecourse Company Ltd (1937) 56 CLR 605), although it may be coupled with the grant of a proprietary interest in land. 141

Sterling Guardian Pty Ltd v FCT (2006) 149 FCR 255 at [11] (Heerey, Dowsett and Conti JJ).

142

For this reason some commentators have emphasised the “difficulty” in identifying the final private consumption expenditure when dealing with real property transactions: McCarthy D, “The Australian GST” in Peacock, n 1, pp 67-69. In New Zealand, real property transactions were originally exempt from GST precisely because unimproved land was not something which could be consumed, and taxing real estate transactions would create a number of political problems: Harley G, “Dilemmas for GST Tax Policy Designers: Land Transactions” reprinted in Krever R (ed), GST in Retrospect and Prospect (Thomson Reuters, 2006) pp 213, 220-221. Indeed, the application of GST to real property and residential structures has led some commentators to describe the GST to be a tax on investment as well: White G, “The GST Treatment of Real Property from a New Zealand Perspective” in Peacock, n 1, pp 225, 230, 238. Various proposals have been made to deal with these problems, including the proposal that allows individuals to register for input tax credits for GST or simply making GST levied on an annual basis on those who occupy real property: Peacock C, “Taxing the Consumption of Owner-Occupied Residential Property” (2013) 24 International VAT Monitor 299 at 300-301.

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usual to say one has contracted or entered into or out of one. Indeed, an undertaking to do nothing is not an undertaking to devour or destroy anything. (3) Similarly, the creation, grant, transfer, assignment or surrender of any right does not devour or destroy anything. Again, quite the contrary – the creation of a right is the complete opposite of decay or destruction, and, hence, consumption. Furthermore, when dealing with intangible property it is somewhat of an oxymoron to say that property which is unable to be touched or grasped can be physically devoured or consumed. Thus, the GST Act taxes matters which, under both a technical as well as a common understanding and general conceptions framework, are not only broadly distinguishable from consumption (which is an act of destruction), but are diametrically opposed to consumption, that is to say the GST is a tax on investment (which is an act of creation). In fact, neither the Asprey Report, which was relied upon by Hely J for neither the evidence of a broad-based consumption tax, nor the definition of the “goods and services tax” in The Macquarie Dictionary, make the slightest suggestion that GST is imposed on assignments of intellectual property, financial acquisitions, releases from contractual obligations, or State imposts. This is probably to do with the fact that these matters have nothing to do with consumption, as ordinarily understood. So it seems the GST theoretically may have started off as taxing outputs which may or may not go on to be consumed, like goods or services, but in practice it then branched out to become a tax on investment inputs. So even if consumption was the main or substantial subject of taxation for the purposes of s 55 (Proposition 12), the GST Act goes on to introduce matters necessarily distinct and separate, indeed antithetical, to consumption, namely, investment (Propositions 8, 22). Or, perhaps, the real message is that it is unlikely consumption should be the focus of this analysis precisely because consumption, as the term is generally or technically understood, is too narrow a concept to account for everything which the GST taxes. This is yet another stark reminder of the need to look at the prescribed criteria of liability found in the text of the GST Act (Proposition 21). However, it is useful to first examine what the 38th Parliament (which sat when the GST package was first announced), the 39th Parliament (which enacted the GST Act), and the 40th Parliament (which was first confronted with the operation of the GST) each understood the GST to be taxing. This is not only because the Parliamentary Debates may help inform or illuminate the true meaning of the text of the GST Act, but also because s 55 is specifically concerned with political relations (Propositions 1-2) and gives weight to the Parliamentary understanding of the tax statute being challenged (Propositions 23-24, 26(b)).

What did Parliament believe the GST was taxing? Despite the warning by Quick and Garran that the House of Representatives could not submit to the Senate a “composite or general tax bill” (Proposition 2), it is somewhat surprising, perhaps ironic, that the Senate was being asked to pass a tax bill called “A New Tax System – (Goods and Services Tax) General Bill 1998” (emphasis added). But was the substance found within this “General Bill” as ominous as its title? This can be answered by providing the answer to two more questions. First, does the Parliamentary record suggest that the GST was dealt with as a unit, or as a range of subject matters necessarily separate and distinct (Propositions 8-10)? Secondly, was there a clear Parliamentary understanding as to whether the GST Act dealt with “one subject of taxation only” (Propositions 23-26)?

GST: A broad-based indirect tax on what, exactly? If the GST is a tax on one homogenous unit called “supply”, then the GST should be referred to as just that: a modest tax on “supply”, and nothing more. By contrast, if the GST involves “tacking” together a number of indirect tax proposals into a single omnibus tax bill, then the GST should be recognised by Parliamentarians across the political spectrum as an indirect tax on goods, an indirect tax on services, an indirect tax on State taxes, and an indirect tax on real property, and so on. Back in 1999, some commentators thought that the latter was the better way to characterise the passage of the GST through Parliament itself: The Parliamentary debate is not about taxing some artificial concept of “supplies less supplies that are not taxed under excise”; it is about taxing goods, or land, or books or services (natural rather than 228

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This author fully agrees with this characterisation of the Parliamentary record. In fact: (1) If supporters144 and opponents145 of the GST agreed on anything, it was that the GST was expanding the existing tax base from taxing goods only, to including an otherwise unprecedented and – for the ALP, Greens, Senator Harradine and some Democrats – a highly controversial indirect tax on services. While the executive government frequently chastised members of the opposition for attacking the proposed “services tax”146 in the new tax regime, opponents hit back, arguing that a new “tax on services”147 or “services tax”148 would disproportionately burden the 143

Cominos and Dwyer I, n 1 at 591; Cominos and Dwyer II, n 1 at 77.

144

Commonwealth, Parliamentary Debates, House of Representatives, 7 December 1998, p 1529 (Kerry Bartlett): “And that is exactly what will happen if we do not broaden the indirect tax base to include services”; 8 December 1998, p 1644 (Tony Lawler): “It is widely recognised that the Australian economy will not fall over tomorrow if we do not fix the 1930s tax system, but it will fall over soon if we continue to ignore the area of taxation which the current system ignores – that is, the tax on services. The tax on services must not be ignored because that is the tax that is not being paid by the wealthy”; 29 June 1999, pp 7760-7761 (Peter Costello): “We do not begrudge the thinking of Scullin in 1932 when he was thinking about indirect tax. He was confronting an economy which had a narrow goods base. Services were probably unthought of. It was not known how you could possibly tax services. Was Scullin thinking about the way in which sophisticated economies would develop services? … Was Scullin thinking about how you would export financial services, accounting services or legal services and how you would take off those embedded taxes in a new modern trading world? Of course he was not”; 29 June 1999, p 7768 (Joe Hockey): “I ask this question of the Labor Party: if you were building a new taxation system today, would you cast aside a tax on services? Services represent a significant part of our economy today … A tax on services is going to deliver what the Treasurer described as the social fabric of the future”; 30 June 1999, p 7884 (Bruce Baird): “Do they want to go back to a wholesale sales tax? Do they want to go back to a situation where we depend on a narrowing tax base? … The service sector is now the fastest growing and the most significant sector in Australia”; 25 August 1999, p 9073 (Bruce Baird): “It provides a tax on services around Australia, it brings into the taxation net areas of economy that previously have been able to avoid taxation”; 24 November 1999, p 12558 (Bruce Baird): “It is about widening the tax base to include services, which have so far been exempt”; 25 November 1999, p 12727 (Peter Costello): “If ever I have seen a case for bipartisan support for necessary tax reform it is on indirect taxation … that is, an indirect tax base which covers goods and services”; Commonwealth, Parliamentary Debates, Senate, 9 December 1999, p 11584 (Andrew Murray): “I have never understood those who say it is okay to have an indirect tax on goods – on manufacturing – but not on services? Why would you think it is okay to hurt goods and manufacturing with an indirect tax but not to apply the tax on services?”; 8 June 2000, p 17399 (Cameron Thompson): “We are talking about fairness and the ability of the government to tax services as well as goods to make sure that our manufacturing industries are not carrying an undue burden in the tax network”; 2 April 2001, p 23435 (Rod Kemp): “The taxation of services, as Senator Conroy would know, is one of the key features of a goods and services tax.” 145

Commonwealth, Parliamentary Debates, Senate, 25 March 1998, p 1223 (Peter Cook): “There is no tax on services, so what the government are going to do is introduce a 15 per cent tax on services”; 9 December 1998, p 1680 (Martin Ferguson): “The GST, without a doubt, is a job destroyer because it will tax services for the first time, despite this being the sector that drives job growth in Australia”; 30 March 1999, p 3478 (Chris Evans): “In introducing a goods and services tax, the government are introducing a tax on services, in most cases, for the first time”; 29 June 1999, p 6822 (Peter Cook): “We must remember that this is a tax on everything, and many services for the first time will be taxed”; Commonwealth, Parliamentary Debates, House of Representatives, 10 December 1998, pp 1852-1854 (Simon Crean): “WST has no tax on services”; 10 June 1999, p 6674 (Con Sciacca): “There is no wholesale sales tax on services; there are no taxes on services at the moment”; 11 April 2000, pp 15682-15684 (Stewart McArthur): “So we have this fundamental change to the taxation system where there will be a tax on goods of only 10 per cent, there will be a tax on services which have received no tax up to date”; Community Affairs Reference Committee, Parliament of Australia, Canberra, 3 March 1999 (Peter Cook): “If you are basically an organisation that delivers services, what is your view about broadening a tax base or a proposal to change tax that will now include a tax on services?”; Employment, Workplace Relations, Small Business and Education Legislation Committee, Parliament of Australia, Canberra, 12 March 1999 (Mr Crick): “I guess underpinning all of this is that there will be a tax on services which has not been in existence before, so services are going to have price rises. I do not think there is any denying or getting around that.” 146

Gareth Evans, for example, was criticised for his back flip on the services tax: Commonwealth, Parliamentary Debates, House of Representatives, 23 March 1998, p 1281 (Peter Costello): “On 25 August 1997, he reversed his position. This was the man who, on 13 May, said that the services part of the economy was not pulling its weight and on 21 May said that he was against the services tax”; 6 April 1998, p 2546 (Christopher Pyne): “Within a fortnight he had changed his mind on a services tax”. See also Commonwealth, Parliamentary Debates, House of Representatives, 6 June 2000, pp 17141-17142 (Bruce Baird): “With the introduction of the GST, for the first time the states will have their own growth tax. The BAD tax, the FID tax, the bed tax and some of the stamp duties will be taken off and will be replaced by a growth tax and a services tax.” 147

Commonwealth, Parliamentary Debates, Senate, 30 March 1999, p 3478 (Chris Evans): “The services part of the new taxation regime will seriously impact on the quality of life of people with disabilities”; 31 March 1999, p 3600 (Chris Evans): “People with disabilities are huge consumers of services. A tax on services, as proposed by the government, will very adversely

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poor, the disabled, the domestic tourism industry, and labour intensive industries more generally. Of course, one would think the title of the GST Act readily confirms all this: it suggests that in order to create a goods “and” services tax, one has to bundle together a tax on goods (a duty of excise) with a tax on services (a service tax). Thus, the very title of the GST Act announces to the world that the GST involves the merging together of two very different kinds of indirect taxes into a single composite and general tax bill (Propositions 1-2); (2) The second political lightning rod was the effect of s 81-5 of the GST Act, which was often described by its opponents as being “a tax on a tax”.149 This was due to the fact that the payment of State taxes, fees and charges would all fall within the scope of the GST tax base, effectively meaning that the people of the States were being slapped with a federal tax on State taxes. affect this group of people … So, at the same time as having this huge, unmet need, the new tax on services for people with disabilities will be a further barrier to their full participation in society”; 24 May 2001, p 24329 (Chris Evans): “Disability support pensioners, in addition to feeling the impost of the GST felt more generally across the community, are large purchasers of services, and therefore they have been impacted by the GST as a new tax on services”; Commonwealth, Parliamentary Debates, House of Representatives, 27 May 1998, p 3928 (Allan Morris): “A tax on services is a tax on labour at a much higher rate”; 1 July 1998, pp 5816-5819 (Gareth Evans): “A GST is no help at all when it comes to job creation in the services sector, where most of our hope must be for rapid future employment growth. Whatever case may be said to exist for introducing a new tax on services at a time of economic prosperity – there are many reasons why you should not”; 6 March 2001, pp 25167-25170 (Craig Emerson): “We said that the prices of services, and the lumpy services, would go up – obviously they would because there was no tax on services and now there is a 10 per cent tax on services”; Employment, Workplace Relations, Small Business and Education Legislation Committee, Parliament of Australia, Canberra, 24 February 1999 (Mr Donnelly): “It is a tax on services, which have not been taxed before, and, by and large, services tend to be, almost by definition, relatively labour intensive.” 148

Select Committee on A New Tax System, Parliament of Australia, Canberra, 25 February 1999 (Peter Cook): “It would be as well to look at the independent modelling that is being conducted for the impact of a services tax on tourism and other labour-intensive exports”; Select Committee on A New Tax System, Parliament of Australia, Canberra, 2 March 1999 (Andrew Bartlett/Mr MacDonald): Q: “Do you believe that any form of taxation of services is automatically regressive?” A: “I would say it certainly is regressive. I think the services tax is a most iniquitous tax”; Select Committee on A New Tax System, Parliament of Australia, Canberra, 19 March 1999 (Peter Cook): Q: “This is an industry [referring to the Tasmanian tourism sector] that does not have a services tax on it at the present time?” A: “Correct.” Q: “And a GST would impose a services tax on it in a price sensitive industry, which therefore creates more obstacles for you?” A: “Yes.”; Commonwealth, Parliamentary Debates, House of Representatives, 13 April 2000, pp 16010-16011 (John Murphy): “But the big killer with the GST for most people is in the services area.”

149 Commonwealth, Parliamentary Debates, Senate, 20 April 1999, p 3914 (Sue McKay): “People already pay for these services through rates and small fees, and to slap a GST on top is just plain unfair. It is, in fact, a tax on a tax”; 23 November 1999, p 10395 (Sue MacKay): “How does the minister explain insurers being forced to charge GST on fire levies, with stamp duties on top of that, when the Howard government promised that the GST would not be a tax on a tax?”; 23 November 1999, p 10400 (Trish Crossin): “Despite their election promise to simplify the tax system, the government has revealed in certain cases that the GST is in fact a tax on a tax. Where a state or local government applies a levy, a fee or a charge for a service provided, the GST will apply on top of that levy, fee or charge”; 23 November 1999, p 10402 (John Hogg): “My colleagues who spoke before me, Senator Sherry and Senator Crossin, have clearly pointed out that this tax on a tax is applying throughout a number of states of Australia”; 23 November 1999, p 10403 (Nick Sherry): “The GST is going on everything and double taxation is applying”; 9 December 1999, p 11642 (Nick Sherry): “The GST will apply to a range of state services and those states supply state taxes; so we will have a tax on a tax … State governments can impose various state taxes on a variety of services, particularly in the financial services area, and we are going to have the GST on top of those taxes – a tax on a tax”; 23 December 1999, p 10398 (Nick Sherry): “Senator Mackay raised an important issue in a question to the Assistant Treasurer, Senator Kemp, relating to the charging of a GST on fire levies and the application of stamp duties – in other words, a tax on a tax on a tax. This is a further major example of the problems with the application of a GST – the important principle of a tax on a tax. This was an issue which the Liberal-National coalition assured the Australian people would not occur in respect of a GST”; 17 February 2000, p 12018 (Peter Cook): “At, in conducting its inquiry, the committee examine the following matters … (k) the extent to which the GST is levied on state and local government fees, charges and levies, thus becoming a tax on a tax.” Compare Commonwealth, Parliamentary Debates, House of Representatives, 20 October 1999, p 11945 (Simon Crean): “By definition, imposing a tax on a tax involves tax cascading … They have created an environment for the new cascade – waterfalls breaking out all over the country in terms of local charges and levies”; 20 October 1999, p 11959 (Craig Emerson): “What that means is that any state government charge or any tax or fee is going to be subject itself to GST unless the government announces that it is not … They say it is not a tax on a tax, but it is a tax on a tax unless the Treasurer deems that it is not a tax on a tax”; 25 November 1999, p 12678 (Craig Emerson): “Will the GST be a tax on a tax, Madam Deputy Speaker? Yes, of course it will. The Treasurer has confirmed that the GST will apply to taxes, fees, charges and levies unless he determines otherwise and he has not determined otherwise in any case at all”; 28 June 2001, p 28918 (Simon Crean): “Another promise they made was that there would be no tax on a tax when the GST was introduced. But you have only to look at the fact that taxes, levies, fees and charges that can and do have GST added to them … Some commitment to no taxes on taxes!”

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Conspicuously, however, supporters of the GST made no serious attempt to rebut the claim the GST Bill imposed a tax on a tax. Rather, they simply pointed out that the ALP was not prepared to say that the proposed tax itself benefited the States, or would lead to a lower overall tax burden;150 (3) The third political lightning rod was education. A tax on books and newspapers was described by both the ALP and the Democrats as being a “tax on knowledge”151 precisely because it would increase the cost of both books and newspapers, thereby pricing out these two goods from the reach of low income earners. This sentiment was echoed by several members of the public who appeared before various Senate Committees.152 Thus, the circumstances of life test (Proposition 10) clearly suggests that a tax on goods, a tax on services, and a tax on a tax are taxes on subject matters necessarily separate and distinct – a services tax raised distinct policy concerns for the disabled and other sectors of the economy with labour intensive inputs; a tax on a tax raised serious concerns about the political morality of double taxation by imposing a federal tax on State taxes; a tax on goods, especially for books, also raised distinct policy concerns for students, the printing industry and disadvantaged people in rural areas who rely on books for their education. In the case of an estate duty, death is clearly one inevitable indicia or circumstance of life which unifies everything being taxed (Propositions 8-10). But for the living, and for a sizeable minority, if not majority, of the Senate, disability services, funeral services, and educational services or government services are various circumstances or indicia of life which ought to have required that a tax on services be separately considered from, say, the distinct policy issues raised by a tax on a tax, or any policy issues associated with indirect taxes on perhaps more innocuous subjects like real property or financial supplies. At this point, however, it should be noted that an indirect tax, levied proportionately on the value of goods like newspapers, books or other educational commodities produced, distributed or manufactured throughout Australia, would be a duty of excise for the purposes of ss 55 and 90 of the Constitution.153 Indeed, a compelling argument might very well be made that the taxation of books and newspapers were subject matters necessarily separate and distinct subjects of taxation, if it were 150 Commonwealth, Parliamentary Debates, House of Representatives, 25 August 1999, p 9049 (Peter Costello); Commonwealth, Parliamentary Debates, Senate, 23 November 1999, p 10401 (Phillip Lightfoot). 151

Commonwealth, Parliamentary Debates, Senate, 31 March 1999, p 3652 (Natasha Stott-Despoja); 27 May 1999, p 5586 (Stephen Conroy); 21 June 1999, p 5722 (Trish Crossin); 25 June 1999, p 6534 (Natasha Stott-Despoja); 29 September 1999, pp 9184-9185 (Trish Crossin); 29 September 1999, p 9189 (Peter Cook). Compare Commonwealth, Parliamentary Debates, House of Representatives, 3 June 1999, p 6005 (Michael Lee); 30 June 1999, p 7921 (Simon Crean); 1 September 1999, p 9586 (Julia Irwin); 1 September 1999, p 9597 (Alan Morris). Compare Commonwealth, Parliamentary Debates, Senate, 22 April 1999, p 4192 (Andrew Bartlett); 20 April 1999, p 3913 (Bob Brown); Employment, Workplace Relations, Small Business and Education Legislation Committee (GST and A New Tax System), Parliament of Australia, Canberra, 24 February 1999 (Natasha Stott-Despoja); 2 March 1999 (Natasha Stott-Despoja). 152

Environment, Communications, Information Technology and the Arts Reference Committee, 23 February 1999 (Mr Niski); Employment, Workplace Relations, Small Business and Education Legislation Committee (GST and A New Tax System), Parliament of Australia, Canberra, 24 February 1999 (Mr Donnelly); Environment, Communications, Information Technology and the Arts Reference Committee, 2 March 1999 (Mr Lane); Employment, Workplace Relations, Small Business and Education Legislation Committee (GST and A New Tax System), Parliament of Australia, Canberra, 12 March 1999 (Mr Andersen); Select Committee on A New Tax System, Parliament of Australia, Canberra, 4 March 1999 (Mr Holderness-Roddam); 5 March 1999 (Miss Dalmau). Compare Commonwealth, Parliamentary Debates, Senate, 8 March 1999, p 2336 (Alan Ferguson); 31 May 1999 (Allan Morris) (petition).

153

A tax of one halfpenny upon each copy of newspaper published and then sold in New South Wales was held to be a duty of excise: John Fairfax & Sons Ltd v New South Wales (1927) 39 CLR 139 at 141-142 (Knox CJ, Gavan Duffy and Starke JJ), 142-143 (Isaacs J), 143-145 (Higgins J), 145-146 (Powers J) (books, newspapers and gaming cards are all “goods” for purposes of s 90), 146-147 (Rich J). It goes without saying that a supply of books falls under the category of goods in the GST legislation: Travelex Ltd v FCT (2008) 71 ATR 216 at [46] (Emmett J), quoted in Travelex Ltd v FCT (2010) 214 CLR 510 at 525 (Heydon J). See also Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 at 309 (Menzies J). Thus, the imposition of GST on books or newspapers emanates not from the GST (General) Act, but from the GST Excise Imposition Act.

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not for the fact that the imposition of GST on books emanates from the GST Excise Imposition Act which, of course, allows for the imposition of taxes across several subject matters (Proposition 14). In particular: (1) There is little doubt that if the taxation of books and newspapers had been sent up to the Senate in a separate bill, that bill would have been dead on arrival. That is, “a tax on knowledge” would have been flatly rejected by a coalition of ALP, Democrats, Independent and Green Senators (all of whom are on record as being vigorously opposed to the taxation of books and newspapers). Indeed, Senator Kim Carr, shortly before the Senate voted on the GST Acts, neatly summarised the political relations between the two Houses when he pleaded with the Democrats to think about the consequences of “signing up to the Tory campaign to restrict access to books by increasing the price of books by placing a tax on knowledge”.154 But because of the s 53 gun, there was little the Democrats could do: they could not directly amend the GST Excise Imposition Act and, accordingly, the least controversial option was simply campaign to later repeal the “tax on knowledge” after having voted to pass it.155 (2) Identifying parts of the GST as “a tax on knowledge” reflects the popular community conception that taxing books prices the less educated out of the market for knowledge, as evidenced by concerned citizens who appeared before the Senate Committee and the popular press at the time. Therefore, describing parts of the GST as being “a tax on knowledge” (or for that matter a “tax on a tax”) is not a label derived from any “analytical” or “logical” classifications (Proposition 2). Indeed, quite the contrary: it is a classification derived from raw politics. (3) When one looks to the substance of the GST Act, as opposed to its mere form, there are some striking similarities between the GST Act and the Paper Duties Precedent – the very evil s 55 was designed to prevent (Proposition 2). After all, the GST itself imposes a tax on real property, a tax on tea, a tax on sugar, a tax on books and a tax on newspapers (that is, a tax on knowledge). In substance, therefore, the GST resembles the Paper Duties Precedent in every other material way except one, namely, the GST is imposing a regressive tax on knowledge, whilst the Paper Duties Precedent was a progressive attempt by Gladstonian liberals to repeal any tax on knowledge. Indeed, the reason advanced for the opposition to a GST excise on books was the same reason 19th century liberals opposed paper duties: they raised the cost of books and newspapers, pricing these goods out of the hands of the poor and those who are least educated (Proposition 2).156 History does not repeat itself, but it sure does rhyme. (4) Even today, books, periodicals and newspapers are one of 16 expressly exempt “subject matters”157 in the VAT legislation in the United Kingdom, with successive governments pledging not to impose any tax on knowledge.158 Not only does the text of the VAT legislation implicitly concede that VAT groups together multiple subject matters, but it is somewhat curious that a unicameral legislature (in the sense that the House of Lords cannot block money bills and its 154

Commonwealth, Parliamentary Debates, Senate, 27 May 1999, p 5603 (Kim Carr).

155

It is unclear whether the Democrats realised that a tax on books constituted a duty of excise. Perhaps if it had been explained to them, they might have voted down the GST Excise Imposition Act until their demand for an exemption for books was acceded to. After this betrayal of their own constituents, the Democrats specifically vowed to repeal the tax on knowledge: Wright P, “A Tax on Knowledge Leaves Democrats in the Bad Books”, The Sydney Morning Herald (20 April 2001) p 16; Crabb A, “Democrats Leader Commits Party to Reversal on Books Tax”, The Age (22 June 2001) p 4; Gordon J, “Why Books Are Bleeding Between the Lines”, The Age (18 September 2002) p 3; Editorial, “Reading Between the Lines on Book Trading”, The Age (20 September 2002) p 20. Several petitions, from 1999 to 2004, were presented to the Parliament by the Democrats calling for a repeal of the “tax on knowledge” imposed by the GST: Commonwealth, Parliamentary Debates, Senate, 17 November 2004, p 1 (Andrew Bartlett); 18 June 2003, p 11877; 29 March 2004, p 22057; 31 March 2004, p 22379; 11 May 2004, p 22725; 9 August 2004, p 25853; 12 August 2004, p 26261; 29 November 2004, p 1 (Natasha Stott-Despoja); cf “GST Off Books”, 28 March 2001, p 7 (quoting Thomas Keneally).

156

Dagnall H, “The Taxes on Knowledge: Excise Duty on Paper” (1998) 20 The Library 347; cf Commonwealth, Parliamentary Debates, House of Representatives, 7 March 1902, pp 10768-10769, 10771 (Thomas Brown), 10770-10771 (Mr Mahon); 9 December 1907, p 7197 (John Quick); 25 November 1931, p 1884 (Joseph Lyons).

157

Value Added Tax Act 1994 (UK), Sch 8, Pt 1 (Group No 3).

158

Grant A, “Treasury Restates its VAT Promise”, Printing World (6 November 2003) p 6.

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assent is not necessary to pass tax legislation) is able to secure more progressive exemptions than a bicameral legislature with the finely wrought and carefully framed checks and balances found in the Australian Constitution. In substance, the GST essentially involved a curious Australian reverse re-run of the 1860s Paper Duties Precedent (Proposition 2). Be that as it may, what really makes the matters found in ss 9-10(2)(b) and 81-5 of the GST Act “necessarily distinct and separate” are the differential impacts a services tax and a tax on a tax would have for States like Queensland, Tasmania, Victoria and Western Australia. Several Senators of these States viewed the various “ingredients” contained within the GST Act as an act of aggression against the people of these States (Proposition 1). Specifically: (1) Parliamentarians from Queensland, Tasmania and Western Australia noted that because these States were heavily reliant on tourism services, a shift away from taxing goods and toward the taxation of services would cause significant job losses in these States,159 particularly by making these States a more expensive (and therefore less attractive) destination to visit domestically for a holiday, at least compared to cheaper Asian destinations.160 A number of Democrats were also specifically concerned about the deleterious impact the GST would have on tourism, prompting at least two Democrats to cross the floor to vote against the proposed tax on services.161 159

Commonwealth, Parliamentary Debates, Senate, 18 February 1999, pp 2244-2245 (Peter Cook): “15,000 jobs will be lost. Where will they be lost? They will be lost in states like Queensland and Tasmania. In what industries will they be lost? They will be lost in industries like tourism … industries that are growth industries in this nation”; 20 April 1999, p 3814 (Nick Sherry): “Some industries under a GST do better than others. The mining industry, for example, does gain, but tourism is a major loser. Interestingly, tourism is our largest export industry … And here we are introducing a new tax on our largest export industry”; 27 April 1999, pp 4346, 4359-4360 (Nick Sherry): “There has been some discussion about the tourism industry. This is important in respect of Queensland and Tasmania because, as a percentage of their state gross domestic product, both of these state economies are more reliant on tourism than are other states throughout Australia … Because Tasmania and Queensland are reliant on tourism more than other sectors around Australia, the GST has a net adverse effect that flows through to the Tasmanian and Queensland economies”; 27 April 1999, pp 4357-4358 (John Hogg): “The worst case scenario, which I am led to believe is the more likely case, provides for some 22,681 jobs to be lost … In some of the other regions, even under the best case scenario, there are losses. These are not necessarily all tourist areas; nonetheless, they are significant in the state of Queensland because of the fact that we are predominantly, outside of being a mining and an agricultural state, very heavily into tourism”; 27 April 1999, pp 4361-4362, 4367 (Shayne Murphy): “The tourism industry is of fundamental importance to my state … Even if there were good points in the application of a GST, one thing is for certain: it will have a very detrimental effect on the Tasmanian tourism industry”; 27 April 1999, pp 4364-4365 (Bob Brown): “The position of Tasmania as far as the GST is concerned is particularly invidious … Tourism is the future for Tasmania”; 14 May 1999, p 5115 (Brian Harradine): “One of the big losers is tourism and one of the winners is the manufacturing industry. There are plenty of the former in my home state of Tasmania and not much of the latter”; Commonwealth, Parliamentary Debates, House of Representatives, 31 March 1999, p 4815 (Lindsay Tanner): “Queensland suffers in addition because it is a more services dominated economy, it has less manufacturing; therefore it stands to benefit less from things like the abolition of the wholesale sales tax and the shift in emphasis to taxation of services”; 13 May 1999, p 5382 (Kevin Rudd): “One body of evidence presented to the Senate inquiry – and I am sure the member for Moreton would endorse this, given the range of his interjections – is that the impact on services sectors in the state of Queensland would range into the tens of thousands of jobs lost. Why? Because services sectors are not taxed and tourism is not taxed”; 31 May 1999, p 5579 (Kevin Rudd): “The tourism sector in states like Queensland, Tasmania and Western Australia will be as hard hit under this new deal with the Democrats as it was going to be under the deal that existed prior to last Friday”; Select Committee on a New Tax System, Australian Senate, A New Tax System (1999) p 131: “In comparison to the size of their work forces, the Northern Territory, Tasmania and Queensland will be most disadvantaged by job losses.”

160

Commonwealth, Parliamentary Debates, Senate, 27 April 1999, pp 4350-4352 (John Hogg): “In addition, the increases in the GST-inclusive $A prices of hotels and other tourist services in Australia, would encourage Australians to choose overseas holidays in preference to domestic holidays. Of course, this is significant area in Queensland”; 27 April 1999, p 4357 (John Hogg): “Tourism services, such as accommodation, food and most domestic travel, will incur a GST which will make Australia a less attractive destination, according to tourism industry representatives”; Select Committee on a New Tax System, Australian Senate, A New Tax System (1999) p 129: “The GST means that the price competitiveness of destinations such as Western Australia, the Northern Territory, Tasmania and tropical North Queensland will be reduced against their overseas competitors. Australians will fly over Australian destinations heading for much cheaper South-East Asian destinations.”

161

Commonwealth, Parliamentary Debates, Senate, 22 April 1999, p 4192 (Andrew Bartlett): “There are a number of other issues that the Democrats believe are absolutely crucial and that need to be addressed, such as protecting jobs by zero rating inbound tourism”; 13 May 1999, p 4959 (Natasha Stott-Despoja): “The overall employment impact of this package is not positive. We only have to look at the impact on the tourism sector to see some of the deleterious impacts of this package on

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(2) Because the GST taxes both goods and services, it would have a disproportionate impact on States with lower incomes.162 Thus, poorer States like Tasmania had every reason to demand the GST be split up into a number of bills because that at least would have allowed the possibility that Senators from Tasmania might form coalitions with Senators from other States in order to vote down, or at least water down, the more regressive aspects of the GST. (3) Several Parliamentarians pointed out that the GST would tax fire levies, which disproportionately affect Victoria because it is more prone to bushfires than other States; and airplane levies, which would disproportionately affect rural people who fly in and out of remote regional areas in Western Australia or the Northern Territory.163 These Members of Parliament, too, would clearly have benefited from having the tax on a tax in the GST Act split into a separate bill. Thus, the observation that no source of financial aggression could be more dangerous than measures of finance being unjustly bound together certainly rings true here (Proposition 1). Clearly, various “subjects” within the GST Act all raised the spectre of financial aggression on behalf of the Commonwealth that s 55 was designed to prevent (Proposition 1). But the people of the States – as represented by the ALP, the Greens, the Independents or the Democrats – were never given an “independent vote”, and therefore the opportunity was lost to form an united coalition to specifically vote down a tax bill proposing a tax on a tax (which it appears was only ever supported by the Coalition) or a services tax (which Senator Harradine, the Greens and the ALP opposed, and which the Democrats themselves were sharply divided on, and uniformly desired specific exemptions for tourism services). Rather, the GST Act contained just enough exemptions to appease some Democrats, who were pressured into passing the entire agglomeration – including a newly proposed services tax and employment”; 28 June 1999, p 6703 (Andrew Bartlett): “As a Queenslander I had some specific concerns about the employment impacts of the GST, especially on the tourism industry, a major employer in my own state.” Some Democrats who voted for the GST also thought the GST would be bad for tourism: Commonwealth, Parliamentary Debates, Senate, 27 April 1999, p 4391 (John Woodley): “I invite you to come with me to Cairns. If you think there is any misapprehension about the effect of a GST on the inbound tourism industry, I can assure you that would be quickly dispelled. Cairns is one of the areas which would be most affected if inbound tourism packages are subject to a GST … I am sure that it would have the same effect on tourism in Tasmania”; 14 May 1999, p 5082 (Meg Lees): “That is why we will stick to our amendments on housing, tourism, health, education … because so much in this package is irresponsible”; Select Committee on a New Tax System, Australian Senate, A New Tax System (1999) pp 355, 386 (Democrats Report): “Zero-rating inbound tourism packages would significantly reduce the negative effects of the GST on the most price-sensitive part of the tourism market.” Of course, if the GST had been split up into separate bills then the Democrats might have at least been able to vote down the services tax, at least until the government acceded to their demands. 162

Commonwealth, Parliamentary Debates, House of Representatives, 9 December 1998, p 1689 (Sid Sidebottom); Commonwealth, Parliamentary Debates, Senate, 20 April 1999, pp 3916-3917 (Sue McKay); 27 April 1999, pp 4345-4346, 4359-4360 (Nick Sherry); 27 April 1999, pp 4364-4345 (Bob Brown). 163

Commonwealth, Parliamentary Debates, Senate, 23 November 1999, p 10400 (Trish Crossin): “In some states – such as Victoria – the fire service levy will be hit by the GST and both of these will be hit by stamp duty. So in these states consumers will be hit by a triple tax – a tax on a tax on a tax … It kicks in twice if you live in those states or territories that do have such things as fire service levies”; Commonwealth, Parliamentary Debates, House of Representatives, 16 February 2000, p 13623 (Craig Emerson): “The GST will be applied on top of the following taxes and charges unless there is a new special exemption from the Treasurer: fire levies in some states – although I must say not in others – environmental levies, bushland acquisition levies, camping fees, national park entry fees, swimming pool entry fees, sporting field hire from local councils, community hall hire from local councils and library fees”; 20 October 1999, p 11959 (Craig Emerson): “In my home state of Queensland, here are some of the fees: motor vehicle registration fee, fire levy fee, transport and traffic fees, other fees and levies, including land title fees, court fees, workplace registration fees and registration of business names fees”; “Govt Says Fire Service Levies to Face GST”, AAP (online) (25 August 1999), quoting Simon Crean: “Victorians should be outraged to learn that they have to pay the GST on the fire service levy”; Select Committee on A New Tax System, 2 February 1999 (Mr Stroud): “I will just mention another thing that we are concerned about which has not been clarified and that is whether the GST will mean a tax on a tax. Will GST be applied to the environment management charge at the barrier reef? Will it be applied to the noise levy at Sydney airport? Will it be applied to the passenger movement charge? Those sorts of things are of concern to us, too”. See also Commonwealth, Parliamentary Debates, House of Representatives, 25 September 2001, p 31428 (Warren Snowden): “So a proportion of the GST will be a GST on the [airplane] levy – a tax on a tax.” Given the ACT and North Territory are now represented in the Senate, s 55 ought to be read as protecting the Territories as much as the States from financial aggression on the part of the Commonwealth. Furthermore, it appears that the Democrats would also have opposed a tax on a tax if sent up as a separate bill, given they demanded that legislated and regulatory services by State or local governments be exempted from GST: Commonwealth, Parliamentary Debates, Senate, 20 April 1999, p 3913 (Bob Brown) (listing the various exemptions demanded by the Democrats and calling them unrealistic).

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controversial tax on a tax, which was tacked together with innocuous indirect taxes on intangible property, financial supplies and releases and entries into contractual obligations – all of which Senator Brian Harradine identified from the outset as imposing indirect taxes on “many disparate subjects of taxation”.164 And no doubt if the Senate – or more precisely, the Democrats – had exercised the nuclear option of vetoing the entire GST Act, they would have been chastised for ruining the future financial arrangements between the States and the Commonwealth, thereby defying some alleged government “mandate” to introduce the GST Act (Propositions 1-2). Moreover, it is interesting to note what was not mentioned in the course of four years of Parliamentary debate from either side of the political divide. Somewhat conspicuously: (1) nobody described the GST – even once – as an tax on “final private consumption in Australia”, which itself shows just what a skewed and incomplete picture the Explanatory Memorandum offered of Parliamentary proceedings; (2) nobody described the GST – even once – as “a tax on the act of supply”; (3) nobody described the GST– even once – as “a direct tax on supplies”; (4) nobody described the GST– even once – as “a tax on a supply (or supplies) for consideration”; and (5) when “supply” was mentioned, the Speaker went on to delineate the word “supply” into a specific or distinct subject matter – be it gambling supplies, or supplies of goods, or supplies of services, or supplies of State taxes, or supplies of airplane tickets.165 Therefore, it would be curious indeed if any of the “act of supply”, or “a supply for consideration”, or “final private consumption in Australia” were suddenly declared by the High Court as being the single subject of taxation for the purposes of s 55, since it implies that Parliament did not know what it was seeking to tax. Indeed, none of these concepts were mentioned even once in the course of four years of Parliamentary Debates. One would think the subject of taxation – what is actually being taxed – would surely have been mentioned in one or both Houses of Parliament at least once in the hundreds of pages of Parliamentary debate on the GST. Furthermore, the very fact that “supply” has to be delineated into a distinct or specified subject matter shows that “supply” cannot be a subject of taxation in and of itself. There must always be a subject matter attached to any “supplies” precisely because consideration is given to the specific subject matter being furnished or provided at various points in time. Indeed, as will be seen below, “a supply” in and of itself cannot be a subject of taxation precisely because a supply is unintelligible without a distinct subject attached to each and every “supply”. The High Court has to date correctly refused to give s 55 a narrow or inflexible application (Proposition 25). This makes perfect sense, given the s 55 cases the High Court has considered so far: (1) Both opponents and supporters of the proposed estate duty described it as just that: a tax on all property of a deceased person 12 months before their death. Nobody described it as being a tax on land, or a tax on furniture, or a tax on ships, or a tax on gifts, or a tax on anything else other than the estate of a deceased person (Proposition 8).166 (2) Both opponents and supporters of the income tax, be it income derived from property or capital profits, described the tax as just that: a tax on income. Nobody described the income tax as being a tax on property, or a tax on capital profits, or a tax on anything else other than income (Proposition 28).167 164

Commonwealth, Parliamentary Debates, Senate, 21 April 1999, pp 4018, 4259 (Brian Harradine).

165

See, for example, Commonwealth, Parliamentary Debates, Senate, 27 September 1999, p 8896 (Joe Ludwig); 27 April 1999, p 4372 (Barney Cooney).

166 Commonwealth, Parliamentary Debates, Senate, 16 December 1914, pp 1973-1978 (George Pearce); pp 1987-2002; Commonwealth, Parliamentary Debates, House of Representatives, 15 December 1914, pp 1932-1949; 16 December 1914, pp 2017-2038. 167 Commonwealth, Parliamentary Debates, Senate, 2 September 1915, pp 6620-6638; 9 September 1915, 6730-6761; 11 November 1915, pp 7453-7457. See also Commonwealth, Parliamentary Debates, House of Representatives, 2 September 1915, pp 6647-6662; 9 September 1915, pp 6857-6858; 12 November 1915, pp 7636-7645, 7661-7670.

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(3) Both opponents and supporters described a tax on fringe benefits as just that: a tax on fringe benefits. Nobody described the fringe benefits tax as being a tax on benefits provided by an employer to his or her employee, or a tax on benefits provided by some other person who is not the employee, or a generalised tax on travel allowances, or a generalised tax on cars, or for that matter a tax on anything other than fringe benefits (Proposition 29).168 Thus, the cases simply involved challenges to one or more discrete aspects or components of a single unified subject of taxation (Proposition 10). None of these matters were ever debated in either House of Parliament in any way that might have suggested that they raised distinct policy considerations worthy of separate consideration by both Houses of Parliament, nor did they ever raise any salient implications for States like Queensland, Victoria, Tasmania or Western Australia. The GST Act, however – which prompted a record four separate Senate Committees and was debated in the Senate for nearly 69 hours, the third-longest debate ever in the history of the Senate and just 54 minutes shorter than the Communist Party Dissolution Bill169 – clearly stands in sharp contrast to the modest tax proposals just listed: (1) The GST was hardly dealt with as a unit, namely, as a tax on [insert only one subject matter here] – as was the case with a tax on income, a tax on all property of a deceased person 12 months before their death, a tax on wartime profits, or a tax on fringe benefits. Rather, all sides openly described the GST as an indirect tax on goods and an indirect tax on services, with Parliament vigorously debating the pros or cons of a tax on services with regard to tourism, the poor, and the disabled. In another session, Parliament spent time debating a tax on goods, in particular the proposed tax on knowledge insofar as the GST imposed a tax on books. Then, in yet another session, Parliament spent time debating a tax on State imposts, the controversial tax on a tax. Then, on yet another day or session, Parliament was again back to debating a tax on services, then back to debating a tax on a tax, then back again to debating the tax on services. This hardly sounds like a bill consisting of single unified subject. Rather, it sounds like a cacophony – far removed from a coherent, finely tuned, harmonised symphony consisting of a single subject of taxation. In fact, by requiring the executive government to rewrite the form of the GST Act, the High Court would simply be recognising the fact that Parliamentarians across the political spectrum characterised the GST as being, at a minimum, an indirect tax on goods and an indirect tax on services. (2) The services tax and tax on a tax particularly raised distinct federalism concerns, especially for States like Queensland, Tasmania, Victoria and Western Australia. This itself shows how the various ingredients of the GST tax package are necessarily separate and distinct from the point of view of federalism. Or perhaps the matter can be put more simply by asking: “This legislation imposes a tax on what, exactly?” with the “what” signifying the tax base (that is, subject matter) of the legislation being challenged. Of course, in the case of a land value tax, “what” that was being taxed was one subject of taxation only, namely, land. In the case of an income tax, the “what” being taxed was one subject of taxation only, namely, income. In the case of an estate duty, the “what” being taxed was all property belonging to any deceased person 12 months before their death. In the case of a fringe benefits tax, the “what” being taxed was fringe benefits. In the case of a wholesale sales tax, the “what” that was being taxed was goods only. By contrast, however, the “what” inside the GST Act (the “successor” of the 168

Commonwealth, Parliamentary Debates, Senate, 21 August 1985, pp 89-91 (Fred Chaney); 16 September 1985, pp 553-554 (Fred Chaney); 15 October 1985, pp 1263-1265 (Graham Richardson); 17 October 1985, p 1368 (Tony Messner); 17 October 1985, p 1370 (Tony Messner); 17 October 1985, p 1406 (Patricia Giles); 29 May 1986, p 3007 (Graham Maguire); 8 October 1986, pp 999-1013; 12 November 1986, pp 2009-2011 (Peter Walsh). See also Commonwealth, Parliamentary Debates, House of Representatives, 10 September 1985, pp 666-667 (David Cowan); 17 September 1985, pp 1150-1153; 19 September 1985, p 1392 (Alexander Downer); 10 October 1985, pp 1772-1773 (Dr Edwards); 1834-1835; 11 October 1985, pp 1878-1879 (David Cowan). 169

Costello P, The Costello Memoirs (Melbourne University Press, 2009) pp 134, 141.

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WST) taxes not only goods, but tacks onto the goods tax base the taxation of services, State imposts, real property transactions, financial supplies, and entry and releases from various contractual rights and obligations, all levied at the point of supply.

A clear parliamentary understanding? If Parliament believed that the GST Bill was a single legislative initiative, then one should see a clear Parliamentary understanding to this effect. However, half the Senators either placed on record their rejection of the proposition that the GST Bill dealt with a single subject of taxation, or questioned the validity of the Bill under s 55. On 21 April 1999, Senator Harradine (at the time, the “key vote” needed to ensure that the GST Act passed through the Senate) asked what legal advice the government had received ensuring that the GST General Bill complied with s 55 of the Constitution: I refer the minister [Senator Vanstone] to the GST Bill … The GST Bill, in sections 9 to 10, includes many disparate subjects of taxation, including land transfers, services, transfers of intangible property, and restrictive covenants. Does A New Tax System (Goods and Services Tax Imposition – General) Bill 1998 breach Section 55 of the Constitution? Has the Attorney-General personally been involved in the question of whether or not this is in conformity with the provisions of the Constitution?170

Although Senator Vanstone took the question on notice, in reality, Senator Harradine had caught the government completely off guard: The Federal Treasury did not seek legal advice on the constitutional validity of the GST legislation until more than eight months after the release of the tax package, and it was only requested when prompted by the Senate. This revelation, contained in a document search under the Freedom of Information Act (FOI) suggests the Treasury was oblivious to a possible High Court challenge when it advised the Government on the tax package. Treasury revealed in its response to the FOI search that it possesses only one piece of legal advice on the validity of the GST legislation under the Australian Constitution, a four page brief from the Australian Government Solicitor. The document is dated April 23, 1999 more than eight months after the tax package was released, and four months after the legislation was tabled in the House of Representatives. Treasury appears to have asked for legal advice after the issue was raised by key Independent, Senator Brian Harradine. It did not seek advice before the GST bills were drafted, even though the High Court had struck down 5 billion dollars in State indirect taxes in 1997, and had earlier ruled against the right of the Commonwealth to impose indirect tax in the Mutual Pools case.171

Two days later, however, Senator Harradine reminded his fellow Senators that: We as legislators do have a responsibility to examine very minutely whether measures that come before us would pass the test of constitutionality. It was for that reason that I raised the issue of constitutionality in my speech at the second reading stage. It is for that reason that I asked a question of Senator Vanstone, representing the Attorney-General, whether the Attorney-General himself had given consideration, since this is a very important piece of legislation, to its constitutionality.172

However, to Senator Harradine the GST Bill looked suspiciously like a bill which dealt with a range of necessarily separate and distinct subject matters. How could it be, Harradine asked himself, that a modest tax on goods (the WST) required nine bills for nine separate subjects of taxation while its successor, the GST Bill, which went well beyond taxing just goods, required only one? As Senator Harradine eloquently put it: When the original sales tax legislation was in the process of formulation in 1930, the opinion of eminent Counsel was that it would involve nine separate subjects of taxation … Of course, in 1992, three imposition bills were used for the new sales tax, whether or not the drafters of those bills had considered the High Court case in 1992. Nevertheless, sales tax is a single stage tax on goods only. By contrast, the GST is a multistage tax with refunds. The GST Bill includes many disparate subjects of taxation, including land transfers, services, transfers of intangible property and restrictive governance – surely not a single subject but a number of subjects.173 170

Commonwealth, Parliamentary Debates, Senate, 21 April 1999, p 4018 (Brian Harradine).

171

Cleary IV, n 3, p 5.

172

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4259 (Brian Harradine).

173

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4259 (Brian Harradine).

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Recognising that Senator Harradine had raised an extremely important constitutional point, Senator Cook, on behalf of the Labor Opposition, argued that the GST General Bill was essentially the modern day equivalent of the Paper Duties Precedent (Propositions 1-2). In effect, the government was imposing taxes on real property (tax proposal 1), taxes on services (tax proposal 2), taxes on personal property (tax proposal 3), and taxes on intangible property (tax proposal 4) – all while the s 53 gun was being used to prevent the Senate from amending a single word in a tax bill which was poised to bring about what the government itself described as the most sweeping tax reform in Australian history: Yet the essence of the tax is locked up in one single piece of legislation – A New Tax System (Goods and Services Tax) Bill 1998. The Senate cannot amend the main provisions of that bill. It must take them or leave them … If a challenge to this legislation comes before the High Court, how will “subject of taxation” be defined? Are taxes on real property and personal property different subjects of taxation? If so, this legislation is unconstitutional. Are taxes on tangible property and intangible property, such as intellectual property, different subjects of taxation? If so, this legislation is unconstitutional. Are taxes on goods and services different subjects of taxation? If so, this legislation is unconstitutional.174

Indeed, according to Senator Cook, one simply had to read the title of the legislation – “A New Tax System” – to see the concession that the GST is imposing more than one kind of tax: If we go back to the key words “subject of taxation”, the title of this legislation is “A New Tax System” … It points out the fact that this is not just a bill to amend the tax law, but to create an entire new system embracing several forms of tax law. I said, Minister, that you might have a problem with the title “A New Tax System”, which suggests more than one tax.175

Accordingly, Senator Cook twice placed on record that: In case any future High Court seeks to assert that “Parliament” was confident that the main GST bill dealt with just one subject of taxation, let me make it clear that that is not the view of at least 28 members of this House of Parliament.176

Of course, in response, Senator Kemp asserted that the government firmly believed that the GST Bill was constitutional.177 However, despite repetitive requests from Senators across the political spectrum that written reasons be given explaining why exactly the GST was constitutional,178 the government flatly refused this invitation under the pretext that it is not conventional practice for legal advice to be tabled in Parliament.179 Others, however, were still not persuaded: Senator Margetts thought it proper to incorporate into Hansard various commentary by Quick and Garran about s 55, with 28 other Senators joining her demand that the GST Act be withdrawn and redrafted in order to ensure compliance with s 55, especially in light of academic commentary that argued that the GST was in breach of both the letter and spirit of s 55.180 174 Compare Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4261-4262, 4266 (Peter Cook). Compare Cominos and Dwyer I, n 1 at 591; Cominos and Dwyer II, n 1 at 76: “The GST Imposition – General Bill is imposing a tax on land conveyances, assignments of intellectual property, services, advice, insurance policies, entertainment, etc, all under one omnibus imposition Act. Given to the history of s 55 in the UK Paper Duties Precedent, one might well argue that an omnibus imposition bill such as the GST Imposition – General Bill is precisely the evil that s 55 was meant to prevent.” 175

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4266, 4268 (Peter Cook).

176

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4262-4263, 4266 (Peter Cook); Editor, n 2 at 431: “The Labor Senators believe the GST legislation deals with more than one subject of taxation.”

177

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4260-4261, 4264, 4266, 4268, 4270 (Rod Kemp); 27 April 1999, pp 4274, 4282 (Rod Kemp).

178

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4259 (Brian Harradine); 23 April 1999, pp 4266 (Peter Cook), 4269 (John Woodley); 27 April 1999, pp 4273-4274 (Peter Cook). 179

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4260 (Rod Kemp); 27 April 1999, pp 4274-4276 (Rod Kemp).

180

Commonwealth, Parliamentary Debates, Senate, 28 June 1999, pp 6570-6572, 6597, 6620 (Dee Margetts), referring to Cominos and Dwyer I, n 1 at 586-752.

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These arguments cannot be dismissed as being purely political in nature. First, Senators often have access to legal academics or legally trained staffers who can draw their attention to legal problems with pending legislation. This is especially true for a very important piece of legislation like the GST, which was subject to much academic commentary. In other words, Senators are briefed by experts who are clearly informed about the constitutional principles which are involved. Secondly, Senator Harradine, Senator Cook and Senator Margetts would not be wasting their precious debating time discussing s 55 if they thought the issue was trivial, frivolous or uninformed. Indeed, s 55 objections are not raised in the Senate as a mere debating point,181 and politically substantive policy arguments would have been a far more effective way to bring down the GST itself. In any event, even if these attacks were politically motivated in nature, it must be remembered that taxes always have been and probably always will be political. That is the point – s 55 is concerned with political relations and is designed, after all, to allow the Senate to vote down, or water down, the bad taxes, such as a tax on services or a tax on a tax, which some Senators might regard as a threat to the interests of the States they were elected to represent, whilst also accepting good or anodyne indirect taxes on, say, financial supplies or contractual obligations or releases (Propositions 1-2). Now, it might be argued that the Democrats were not amongst the 29 Senators who voted to have the GST redrafted. But, in fact, Senator Murray, on behalf of the Democrats and their constituents, explicitly recognised the fact that the GST was marketed as being a grouping of indirect taxes being merged into “A New Tax System”: The Democrats were aware of this [s 55] issue, as no doubt were the government and other political parties because we have all received letters from constituents and concerned citizens in this area … I would like to know if the way in which it was dealt with during the election period as a new tax system – in other words, as a grouping of taxes across a wide area – and the way in which it is being presented to parliament matter in your view. One of the things which strikes me about the constitutional provision and the way in which we are dealing with this matter is that all the bills have been presented to us to be debated cognately – in other words, in one lump. They have not been presented to us either at the second reading stage or the committee stage, nor, obviously, at the third reading stage, to be voted on individually and discussed individually. So I would like to know whether you think that dealing with these matters cognately through the Senate makes a difference at all.182

Senator Kemp replied that it would be unusual for the High Court to use government advertising (although leaving open the possibility that the court might take a different view).183 However, Senator Murray pointed out that this did not fully answer his question.184 This evasiveness is particularly concerning, given the whole point of s 55 was to prevent what is, in effect, a grouping of indirect taxes across a wide area (Propositions 1-2). For the purposes of s 55, a duty of excise, a customs duty, a services tax, a tax on a tax, and a real property transactions (land transfer) tax etc, 181

Although s 55 concerns are not unheard of, they are rarely raised. On average, s 55 issues are raised about four times a decade, usually by an individual Senator who draws attention to some overlooked constitutional point: Commonwealth, Parliamentary Debates, Senate, 24 July 1902, p 14625 (Robert Best); 18 September 1906, pp 4731-4733 (James Drake); 3 October 1906, p 5952 (The President); 4 October 1906, p 6078 (Edward Findley); 9 October 1924, pp 5407-5408 (Albert Gardiner); 24 April 1936, pp 891-892 (Gordon Brown); 11 March 1943, pp 1521-1522 (George McLeay); 4 November 1952, p 4069 (Reginald Wright); 10 December 1965, p 2263 (Reginald Wright); 1 December 1982, pp 2988-2989 (John Martyr); 15 December 1983, p 3875 (Arthur Gietzelt); 1 April 1992, pp 1472-1473 (Grant Tambling); 1 June 1992, p 3163 (Bob McMullan); 17 November 1993, p 3050 (Amanda Vanstone); 8 June 1994, p 1526 (Brian Harradine); 8 June 1994, p 1519 (John Watson); 1 December 1995, p 4564 (Brian Harradine). For one exception where a multi-member debate did occur regarding s 55, see Commonwealth, Parliamentary Debates, Senate, 31 August 1993, p 671 (Margaret Reid); 1 September 1993, p 737 (Robert Hill); 27 September 1993, p 1195 (Chris Ellison); 27 September 1993, p 1194 (Sid Spindler); 28 September 1993, p 1261 (Richard Alston); 6 October 1993, p 1747 (Sid Spindler); 6 October 1993, pp 1743-1744 (Senator Cooney); 6 October 1993, p 1740 (Amanda Vanstone); 6 October 1993, p 1739 (Robert Hill); 19 October 1993, p 2145 (Cheryl Kernot); p 2142 (Chris Ellison); p 2138 (Senator Watson); p 2135 (Robert Hill). All s 55 cases to date have involved a unanimous Parliamentary understanding that the law in question dealt with one subject of taxation only. This again makes the GST factually unique and distinct from other s 55 cases.

182

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4264 (Andrew Murray).

183

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4264, 4268 (Rod Kemp).

184

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4265 (Andrew Murray).

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must be considered individually on their merits rather than as just one overall element in a broader tax package. However, only the first two taxes were considered separately on their merits. But having failed to elicit any substantiative response from the government, Senator Murray was again forced to raise the issue a few days later: Minister, I would like to hear from you as to why I should not consider moving a motion in this committee stage that after the close of business on Wednesday the 28th – that is, tomorrow evening – the Senate should agree to delay all consideration of tax bills as per the new tax system until the government provides a detailed supplementary memorandum explaining why these tax bills do not offend s 55 of the Constitution, with particular attention to the fact that these tax bills are being offered as a system, are debated cognately and have been marketed as one package … Minister, in view of the concerns expressed by Senator Harradine and Senator Cook – which are presumably shared by other persons – why should I not move an amendment to oblige the government to provide a detailed supplementary explanatory memorandum on this issue or we will not consider your bills any further?185

In response, Senator Kemp pressured the Democrats into dropping their s 55 concerns: I have given you the assurance that the government believes these bills are constitutional … Frankly, if you move such a motion, I think it would be seen as a delaying tactic. If you do not believe me, that is a choice you have to make, but I think that any attempt to delay these bills further would be judged harshly by the wider community. I suspect, Senator, that if you are determined on a course of action, there is not much that anyone can do – but the wider community thinks this is now the time to debate the bills. It is now the time to make sure that the bills are given proper consideration.186

Senator Murray followed up by noting that the only evidence presented so far that the GST Bill was constitutional was the bare ipse dixit of the Senator Kemp himself: I specifically suggested that the Senate could give you the time – until close of business on Wednesday – to provide a detailed supplementary explanatory memorandum explaining why these tax bills do not offend s 55 of the Constitution. As you know, as a minister of the Crown, an explanatory memorandum has far more weight in matters of law than does Senate debate – although I appreciate that the courts, by precedent, will have regard to what the minister has to say. Nevertheless, an explanatory memorandum is far more reassuring. Really, we are not seeking to say that you have to provide advice from your legal advisers. I am suggesting that you should provide a far more formal response to the Senate than you have given so far, because you have declined to give substance, if you like, to it. You have simply said, “This is not unconstitutional; there have been a number of tax cases” and “You must trust us”.187

At this point, Senator Margetts joined in, pointing out that: An even wider section of the community would be expecting that the government would be responding – not just foiling, not just debating but actually responding – at this stage to the kinds of issues that are being brought up … So far what we have is this: the government have two major issues before we start debating these bills and have failed to respond in any positive way or table anything specific which will deal with these problems. It is not unreasonable, it is not unprecedented and it is fairly normal for the chamber to ask for these reassurances in writing, not just as a debating point. The government says: “No, we have said it is constitutional, so that should be good enough for you”. We know that that does not actually mean a great deal unless somebody is prepared to put their name to that advice.188

However, a fortnight later, still no formal advice was forthcoming: Minister, I would not have raised the issue, but you raised it yourself in your answer to Senator Margetts. I would point out that the article [in the Bulletin magazine] actually quotes you. It said: “When Senator Harradine raised the s 55 problems in the Senate recently, the government stonewalled. Assistant Treasurer Rod Kemp would say only that the new tax was constitutional but 185

Commonwealth, Parliamentary Debates, Senate, 27 April 1999, p 4280 (Andrew Murray) (emphasis added).

186

Commonwealth, Parliamentary Debates, Senate, 27 April 1999, p 4281 (Rod Kemp). Senator Murphy received a similar response when he tried to pursue the constitutionality of the GST in committee: Economic Legislation Estimates Committee, Parliament of Australia, Canberra, 9 June 1999, pp E354-E367. 187

Commonwealth, Parliamentary Debates, Senate, 27 April 1999, p 4281 (Andrew Murray).

188

Commonwealth, Parliamentary Debates, Senate, 27 April 1999, p 4284 (Dee Margetts).

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Is the GST unconstitutional? Some s 55 problems revisited refused to table any advice”. I think that is accurate. That is what you said. You said it repeatedly and you repeatedly refused to table any advice. I just let you know that you have not satisfied all Senators on that issue.189

Furthermore, according to journalist Paul Cleary: Treasury refused to release the advice, and the Government did not show it to the Australian Democrats before they voted in favour of the GST bills.190

One can only speculate why this was the case, but perhaps it had something to do with the quality of the reasoning of the advice provided. When the government finally received advice from the Australian Government Solicitor, Propositions 23, 25 and 27 above were used to conclude that the High Court would simply “defer” to the federal Parliament and adopt a “generous approach”191 in determining whether the GST deals with “one subject of taxation only” (conveniently ignoring the fact that Parliament itself was evenly split on the question). When the advice was later released, it was criticised by the popular press for relegating the High Court to a mere rubber stamp.192 However, the more accurate criticism appears to be that Propositions 23-27 are hardly applicable to the facts: (1) As noted, one House of Parliament – the Senate – can hardly be said to have been satisfied that the GST General Bill dealt with “one subject of taxation only”. The ALP, the Greens, and the Independents all thought the GST General Bill was in direct conflict with s 55 of the Constitution. Furthermore, the record above clearly shows that the Democrats did not satisfy themselves – nor were they satisfied – that the GST General Bill dealt with one subject of taxation only. This renders Proposition 23 of little utility in this case. (2) Senator Murray noted that he received correspondence from his constituents, who raised a number of s 55 concerns with him personally;193 he even suggested that members of the public were threatening to bring court action if s 55 was not complied with.194 However, after the government repeatedly declared it would not table any legal advice, the Democrats gave up on the issue and no longer appeared preoccupied with their respective duties from the broad standpoint of the community (Proposition 24). Rather, the s 55 issues raised by the broader community were put on the backburner once backroom political deals took precedence over the rule of law (Proposition 4).195 Again, this suggests Proposition 24 is of little utility given the facts of this case. (3) The fact s 55 is concerned with political relations (Proposition 2) seems directly on point, given that, first, the executive government repeatedly refused to rationalise in writing the exact subject matter the GST Bill was actually taxing, and, secondly, the very people who voted for the GST were being pressured into dropping their s 55 concern that the GST involved a “grouping of taxes across a wide area”196 into a single omnibus tax bill. Indeed, the complete failure of the government to give even the briefest written summary explaining why the GST General Bill satisfied s 55 might be regarded as an action emblematic of a government that wanted to push a 189

Commonwealth, Parliamentary Debates, Senate, 11 May 1999, p 4762 (Andrew Murray) (emphasis added).

190

Cleary IV, n 3, p 5.

191

To Mr Greg Smith From George Witynski and Guy Aickin, A New Tax System (Goods and Services Tax Imposition – General) Bill 1998 – Section 55 of the Constitution, 23 April 1999, p 5 at [16]. Senator Kemp appears to have read part of this note out to Parliament, describing it as “briefing note”: Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4264 (Rod Kemp). Yet this reasoning seems to be rather circular. Why is the GST constitutional? Because Resch said so. And why does Resch say so? Because Parliament said so – or at least in this case, Parliament said Resch said so.

192

Cleary I, n 3, p 1; Cleary II, n 3, p 4; Cleary III, n 3, p 4; Cleary IV, n 3, p 5; AAP, “Greens to Move for Constitutional Certainty” (28 June 1999) (on file with author), quoting Cominos and Dwyer I, n 1 at 589; Quilty, n 3 at 943-944.

193

Compare Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4264-4265 (Andrew Murray).

194

Compare Commonwealth, Parliamentary Debates, Senate, 27 April 1999, p 4288 (Andrew Murray).

195

AAP, n 192, quoting Senator Margetts: “It is outrageous that the government and the Democrats are just ignoring these fundamental issues, and pushing the deal through as fast as possible. Since the Democrat-government deal, the issue of constitutionality has been swept under the carpet. What happened to the concerns the Democrats expressed about constitutionality before the deal?”

196

Commonwealth, Parliamentary Debates, Senate, 23 April 1999, p 4264 (Andrew Murray); Cominos and Dwyer II, n 1 at 74.

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composite and general tax bill (Proposition 2) through the Senate with as little delay as possible, thereby eliminating any possibility that a political coalition might be formed between the ALP, Greens, Democrats or Independents to vote down the newly proposed services tax, or a tax on a tax, or any other indirect tax on any other subject of taxation. (4) The GST Act is hardly a paragon of cautious drafting, which traditionally is one factor used to justify judicial deference to tax legislation challenged under s 55 (Proposition 26). The fact that no constitutional advice was sought regarding the GST Bill until four months after it was tabled in the House of Representatives is particularly striking, especially when compared to other more modest pieces of tax legislation which – prior to even being tabled in Parliament – were all split across multiple bills to comply with s 55 (Proposition 26). All this suggests that the High Court, far from taking a rubber stamp approach toward the GST Act, is more likely to take a cold, hard judicial look at the GST Act, at least compared to other more carefully drafted tax legislation worthy of judicial deference and respect. Despite this, it has been asserted (without any serious analysis) that the decision in Permanent Trustee Australia Ltd197 has made the constitutional position of the GST even “stronger”.198 This assertion is of questionable validity. First, the federalism issues between the two cases differ significantly both in fact and degree. The Mirror Taxes Act 1998 (Cth) was a tax of extremely “narrow application”,199 namely, a 100% windfall tax on refunds derived from various State taxes levied on Commonwealth places. Due to its very limited scope, the States were not really affected by the Mirror Taxes Act in any way, shape or form (indeed, the windfall tax was specifically said to benefit and protect the States).200 But the GST Act was the very antithesis of the Mirror Taxes Act: not only did the GST make the States financially dependent on the Commonwealth for its tax revenue by imposing taxes on subjects of taxation which the States could traditionally tax (like services,201 financial transactions or real property),202 but also the generalised and otherwise sweeping tax on services and State imposts was viewed by several Senators as imposing a disproportionate burden on smaller States heavily reliant on tourism, like Queensland, Tasmania or Western Australia, as well as States prone to 197

Permanent Trustee Australia Ltd v CSR (Vic) (2004) 220 CLR 388.

198

Brysland, n 1, p 9.

199

Permanent Trustee Australia Ltd v CSR (Vic) (2004) 220 CLR 388 at 398 (in arguendo).

200

Permanent Trustee Australia Ltd v CSR (Vic) (2004) 220 CLR 388 at 398 (in arguendo): “The Mirror Taxes Act is not a scheme that could be used to disadvantage any State.”

201

Indeed, supporters of the GST frequently pointed out that State Labor governments already imposed a modest tax on services such as the NSW bed tax, a tax which the GST services tax was specifically designed to replace: Commonwealth, Parliamentary Debates, Senate, 24 June 1999, p 6297 (Andrew Murray): “There are Labor governments in this country that do believe in taxes on services. The New South Wales government, for instance, taxes beds, which is a service … The government has taken the view that services should be taxed”; Commonwealth, Parliamentary Debates, House of Representatives, 30 June 1999, p 7882 (Andrew Southcott): “What is the Sydney bed tax applied by the New South Wales Labor government? What is that? That is a tax on services, that is broadening the base. It is not a tax on beds; it is a tax on services.” However, all this seems to acknowledge, inadvertently or not, that by imposing a tax on services the GST is, in effect, imposing a bed services tax at the federal level. It also overlooks the fact that States like Queensland, which rely heavily on services sector, never had a bed services tax before the introduction of the GST: Commonwealth, Parliamentary Debates, House of Representatives, 6 December 1999, p 12831 (Craig Emerson): “I was equally astonished to hear the member for Petrie talking about the replacement of a bed tax in Cairns with the GST when, in fact, there is no bed tax in Cairns; there is no bed tax in Queensland at all … A small bed tax in New South Wales and in the Northern Territory will be replaced by a bed tax on every hotel and motel in Australia – that is, the GST. They all voted for a bed tax on every bed in Australia.” As noted earlier, the services tax has the effect of making the Queensland tourism sector less competitive compared to its cheaper Asian neighbours: Commonwealth, Parliamentary Debates, House of Representatives, 6 December 1999, p 12829 (Julia Gillard): “When you are considering your holiday options, many people will look closely at the price of a domestic holiday – going to Cairns, for example – versus the price of going overseas to Bali or some such destination which also offer sea and sun and those sorts of holiday options.”

202

Economic Legislation Estimates Committee, Parliament of Australia, Canberra, 8 June 1999, pp 189-227: Senator Margetts: “The ANTS (Goods and Services Tax Imposition – General) Bill 1998 currently is proposing to tax many things which would normally be taxed under omnibus state stamp duty acts; for instance, conveyances, leases, hire purchase agreements and so on. Is this true?” Mr Greg Smith: “Some of the things that are presently taxed at the state level may be taxed under the ANTS legislation.” Senator Margetts: “So is this not, in effect, potentially a problem?”

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various climatic conditions which lead to destructive bushfires such as Victoria, with the controversial tax on a tax further adding further insult to injury. In short, not a single Senator regarded the Mirror Tax Act as raising any adverse implications for federalism. By contrast, the taxes found in GST Act, such as the services tax or the tax on a tax, were specifically viewed as an act of financial aggression on behalf of the Commonwealth by a sizeable minority, if not a majority, of the Senate (Propositions 1-2). Secondly, there was a clear Parliamentary understanding that the Mirror Taxes Act dealt with one subject of taxation only (Proposition 26). In fact, everyone across the political spectrum agreed that the Mirror Taxes Act was a 100% windfall tax on refunds, and nothing but a tax on refunds, resulting from the Adlers decision.203 The same cannot be said of the GST Act: not only did the very same 29 Senators who voted for the Mirror Tax Act expressly reject the characterisation that the GST Act dealt with one subject of taxation, but even the Democrats were unpersuaded that the GST imposed a tax on a single subject of taxation. Indeed, all this was occurring while all sides of politics were acknowledging the fact that the GST tax package was imposing an indirect tax on goods, the first subject of taxation, as well as an indirect tax on services, thereby bringing another area of taxation into the federal tax net. Clearly, an indirect tax on goods, an indirect tax on services, an indirect tax on State imposts, and an indirect tax on real property etc, is hardly comparable to a modest, one-off direct tax on refunds found in Permanent Trustee Australia Ltd. Thus, these salient factual differences easily distinguish the Mirror Tax Act from the omnibus GST Act.

Is “supply” (or “a supply for consideration”) the single subject of taxation? The existence of a taxable supply is critical to generating a GST tax liability.204 Can it therefore be said in defence of the GST Act that there is one distinct subject of taxation (other than “importations”), namely “supplies”? As discussed earlier, an inland tax on the supply of goods for consideration, levied proportionally to the value of a particular good, amounts to a duty of excise. But if “a supply” was really a single homogenous subject of taxation, or a subject of taxation in and of itself, there would be absolutely no need for a separate Customs and Excise Act. After all, why would Parliament have a separate imposition act for goods if the GST is a tax on a single subject matter, which is not “goods”, but happens to be called “a taxable supply”? A separate GST Excise Act would only be necessary if Parliament wanted to segregate a duty of excise with taxes on services, State taxes, or any other distinct subjects of taxation which are not goods. This suggests one of two possibilities: • Hypothesis 1: “supplies” cannot, in and of themselves, be a subject of taxation, or even a possible subject of taxation because one must always identify what the distinct object attached to each and every “supply” (or series of “supplies”) actually is. • Hypothesis 2: “supplies” is a catch-all term which (used in its broadest sense) signifies a conglomerate, all-encompassing mass of heterogeneous and disparate subject matters, from goods, services, real property, financial assets, fringe benefits, money, income, wages, gifts, State taxes, restrictive covenants, and any other random “stuff” capable of being in stock or storage. Thus, because “supplies” is able to subsume (that is, pick up) almost everything under the sun, a tax on supplies is literally the very definition of a tax on a collection of matters necessarily separate and distinct. 203 See, for example, Commonwealth, Parliamentary Debates, Senate, 23 March 1998, pp 1075-1077 (Chris Ellison); 2 April 1998, pp 1864-1865 (Peter Cook); 2 April 1998, p 1864 (Michael Forshaw). Compare Commonwealth, Parliamentary Debates, House of Representatives, 5 March 1998, pp 627-628 (Chris Miles); 12 March 1998, pp 1233-1235 (Kelvin Thomson). The same clear Parliamentary understanding exists for the Superannuation Contributions Tax Imposition Act 1997 (Cth), which was universally described as enacting a more equitable surcharge tax on a distinct class of high earning taxpayers: Commonwealth, Parliamentary Debates, Senate, 22 October 1997, pp 7864-7867 (Grant Tambling); 24 November 1997, p 9289 (Peter Cook); 25 November 1997, p 9384 (Peter Cook). 204

FCT v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 at 346 (Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ); Travelex Ltd v FCT (2010) 241 CLR 510 at 534 (Crennan and Bell JJ); FCT v Gloxinia Investments Ltd (2010) 183 FCR 420 at 427 (Dowsett, Kenny and Middleton JJ).

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Or, to put it another way, the reason why the GST is an excise should be obvious: either “supplies” is not a subject of taxation in and of itself, but merely an operation, “a taxing point” through which a number of subject matters, goods included, happen to pass through and thereby become pinged and hit with GST; or “supplies”, by definition, represents a chaotic vista of necessarily distinct and separate subject matters, again goods included. Either way, it appears Senator Harradine was entirely correct to characterise the GST as taxing many disparate subjects of taxation. Indeed, once we resort to Proposition 29, we can see that, as a matter of everyday English and common understanding, “supplies” cannot constitute a subject of taxation, in and of itself, as predicted by Hypothesis 1 above. This is because “supplies”, as used throughout the GST Act, functions either as: • the plural form of the noun “supply”, which itself represents the mere fact of an action, namely, the act of furnishing or providing something; or • the present-tense, third person singular of the verb “supply”, which, again, represents the act of providing or furnishing something. Thus, in its ordinary and natural sense, “supplies” represents a verb – a doing word, an action, an occurrence; it describes something which takes place in time. Just consider the following few sentences to appreciate why this is the case: “there have been supplies of X, Y or Z”; “on an almost daily basis, Chris makes supplies of X, Y and Z to Mark”; “Lucy supplies X, Y and Z to John”; or “I have made X supplies, Y supplies and supplies of Z to Paul”. Even if one were to say “I have just made supplies”, this presupposes some background context about what exactly the subject being supplied actually is. Therefore, the word “supplies” – when utterly devoid of the context and the subject matter being dealt with – simply fails to tell us what the disparate, perhaps random, Xs, Ys and Zs being furnished and provided at various points in time actually are. Thus, “supplies” does not function as a noun in the sense that it is a naming word which readily identifies a specified place, person, or thing (all obvious candidates that can constitute a subject of taxation). Rather: The terms “supply” and “importation” do no more than help identify the points in time at which taxation of the “subject” matter occurs (the taxing points) and supply the “linkage” between the tax and its subject matter. The definition of “supply” specifically refers to some of the subject matter by expressly referring (in an inclusive way) to the variety of subjects which it seeks to tax … The matter may be put more simply by saying that the term “supply” (in its core sense) is really no more than a verb and the natural question in looking for a subject of taxation is “supplies of what are being taxed under this Act?” and to find the subject of taxation in the answer.205

Of course, insofar as the GST is a duty of excise, the answer to the what in the question “supplies of what for consideration have been by made in the course or furtherance of a registered enterprise connected and carried on in Australia?” is goods of various kinds. Therefore, by applying Propositions 27 and 29 above, it becomes clear that: It begs the question to employ a noun derived from a verb rather than a noun representing a class of property or rights as the subject matter of a new tax … Common understanding and general conceptions can hardly be expected to treat a noun representing the fact of an action, be it past or future action – namely, “to supply” – to be a subject of taxation in itself, or even to be a possible subject of taxation. A “supply” is meaningless when considered alone, without identification of a subject of that supply, be it goods, services, land, advice, information, etc. This conclusion itself suggests that a tax on a “supply” is necessarily a tax on separate and distinct matters under common understanding and general conceptions because “a supply” would ordinarily be so understood.206

This writer agrees with the proposition that “supplies” cannot be a subject of taxation in and of itself. This is because before something can be provided or furnished – that is, before an action involving the making of any “supplies” can take place – a supplier needs to know what exactly that “thing” is. Therefore, “supplies” as a concept is totally devoid of any meaningful content, at least until one fills in the blank by specifying the distinct subject attached to each and every act of “supply” (or series of “supplies”, in case there is more than one act of “supply”). Nevertheless, although a “supply” 205

Cominos and Dwyer I, n 1 at 591; Cominos and Dwyer II, n 1 at 77.

206

Bevan, n 1 at 174, 182.

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in and of itself is so vacuous that it cannot plausibly constitute a subject of taxation, the reason the GST is able to tax so many things is precisely because the answer or reply to the question “supplies of what?” could almost be anything, meaning almost everything can be taxed. Of course, it is precisely this question-begging exercise that allows any federal executive to “tack” onto that answer any number of subjects of taxation it wants to tax. Certainly, case law – which is one source that can be used to illuminate the common understanding of a particular taxation term (Proposition 28) – suggests “supply” is generally understood to contain two key characteristics. First, with every “supply”, there must be some specific “thing” attached to, or associated with, the act of furnishing or providing something. Thus, as Knox CJ observed: At any rate it is quite clear that the matter is not one in which any nice distinction can be drawn from the fact that the word “supplies” is used apart from the words “gives” and “sells”. The ordinary meaning of the word “supply” is to furnish or provide, and I think that ordinarily in common parlance there is underlying the word the idea that the thing supplied is something belonging to the supplier and not to the person supplied. How far that idea ordinarily goes can hardly be defined.207

This is precisely how s 9-10 of the GST Act uses the word “supply”: The concept of supply in its ordinary meaning in subs 9-10(1) of the GST Act does seem to require some act of provision, furnishment, conferral or giving of some thing. The inclusions in subs 9-10(2) specifically identify some of these things.208

Notice, however, all these definitions ask the question: what exactly is the “thing” which is actually being furnished or provided? Before a supplier can impose GST as a result of any of the taxable events listed in s 9-10(2) of the GST Act, one must always take the first step of filling in the blank by asking what exactly is the “something” being furnished or provided, and then cross-referencing that “something” with one or more of the matters listed in s 9-10(2) of the GST Act. This itself suggests the specified matters found in s 9-10(2) clarify in an inclusive, albeit overlapping and still extremely comprehensive, way the disparate string of subjects which define the GST tax base. Secondly, courts have emphasised one must always identify the particular subject matter (or subject) associated with any act of supply. Thus, as Isaacs J rather astutely observed, because the concept of “supply” is so sweeping, the subject matter dealt with must first be identified in order to make the entire concept intelligible: The word “supply” is a word of such elastic meaning that its signification must depend entirely upon its context and the subject matter dealt with.209

The insight that the singleness of a subject cannot be conclusively determined by the mere fact that Parliament has chosen to group together several distinct subjects – and even if Parliament has chosen to give a collective name to the group (Proposition 7) – seems particularly prescient here, given the Senate back in 1999 was confronted with the “conveniently vague umbrella term”210 like “supply”, a word which because it means everything actually means nothing at all – at least until one first identifies the context and subject matter being dealt with. After all, how can a “taxable supply” (the collective name given to the group of matters listed in s 9-10) be said to be a subject of taxation in and of itself, given the signification of one of its constituent elements – “supply” – itself depends entirely on the context or subject matter being dealt with? The subject matter being dealt with might be goods. It might be services. It might be real property. It might be State imposts. Indeed, the subject matter dealt with might be whatever subject the House of Representatives conveniently chooses to 207

Symes v Stewart (1920) 28 CLR 386 at 389 (Knox CJ).

208

Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461 at [16] (Ryan, Heerey and Edmonds JJ); 62 ATR 682.

209 Symes v Stewart (1920) 28 CLR 386 at 389 (emphasis added), approved in Ex parte Turner: Re Hardy (1947) 48 SR (NSW) 133 at 135 (Jordan CJ), 139 (Street J). 210

Compare Cominos and Dwyer II, n 1 at 72, 76. See also Cleary IV, n 3, p 5: “The Government argues that it is taxing one subject ‘supply’ yet its legislation also says that this comprises a range of subjects”; Cleary II, n 3, p 4: “The Government appears to have overcome this [s 55 conflict] by defining everything taxed under the GST as ‘supply’.”

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“tack” onto the “what” in the question “supplies of what for consideration in Australia?” – however offensive or unpopular the subject may be to the people of the States represented in the Senate (Proposition 1). Indeed, it is precisely this elastic, indeed Playdough-like, quality of the word “supply” that allows any future executive government to expand (or contract) the subjects captured by the GST tax base, if and when it sees fit. Nor is the proposition that a specific subject must be attached to the verb “supply” necessarily new. For example, Barwick CJ did not believe that he was doing violence to the English language when he identified the specific subjects associated with the verbs “sell” and “supply”: It is thus clear to my mind that the verb “sell” is confined to the subject “goods”. This leads me to conclude that the subject of the verb “supply” is the word “services” and not the words “goods and services”.211

Moreover, around the same time the GST Act was enacted, English authorities themselves recognised that, for VAT purposes: Unless the services are rendered for a consideration they cannot constitute the subject matter of a supply.212

But if one needs anymore evidence that one is not distorting the English language when one attaches a subject to any supply, then ask the Commissioner of Taxation who noted in one of its submissions to the Federal Court: The real property the subject of the supply is in Australia and the supply is therefore connected with Australia by reason of s 9-25(4) of the GST Act.213

Or, as Counsel representing the Commissioner of Taxation recently observed: The potential subjects of a “supply” under the GST Act are not confined to juridical rights but extend to things; the broad definition in s 9-10 (“any form of supply whatsoever”) embraces provision of every possible benefit or advantage, and the creation or satisfaction of rights are the means by which a supply is effected.214

The above authorities215 leave little doubt that in everyday language it is perfectly natural to identify a particular “subject” or “thing” being provided or furnished – be it goods, services, real property, or State taxes etc. Clearly, however, in every case in which there is a “supply for consideration”, there must always be a “distinct subject” or “direct object” standing in between the act of supply and any act of consideration. “A supply” can never give rise to a GST tax liability, and, in turn, the imposition of GST onto a particular subject precisely because it is the actual taxable subject (or subject matter) associated with each and every supply that consideration is directed toward, and whose value, in turn, is used for the purposes of calculating the GST liability.216 In other words, neither enterprises nor consumers direct their consideration toward this amorphous or nebulous concept called “a supply for consideration” or “supplies”. Rather, they direct their specific attention toward the distinct subject (various goods, services, intangible rights etc) a supplier furnishes or provides, and which in turn ends up being hit with one-tenth of the consideration of the price given toward that specific subject of taxation. After all, one would only need to funnel out the taxation of goods into separate GST Customs or Excise Acts if the real subject of taxation of an inland tax on the supply of goods in exchange for consideration in Australia is goods, and not “a supply (of some unspecified thing) for consideration”. The making of a supply of something for consideration by a registered enterprise connected with 211

Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 at 302 (Barwick CJ) (emphasis added).

212

CEC v Redrow Group Plc [1999] 1 WLR 408 at 418 (Lord Millet) (emphasis added).

213

Saga Holidays Ltd v FCT (2005) 149 FCR 41 at [39] (Conti J) (emphasis added).

214

FCT v MBI Properties Pty Ltd, Reply of the Commission of Taxation (20 June 2014) at [6] (emphasis added).

215

In his dissent in Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 461-462, Deane J spoke of a tax on the sale of goods and a tax on the manufacture and supply of a concrete in situ swimming pool. The latter was deemed to include the former. But not even Deane J suggested that “supply” somehow constituted the subject of taxation. 216

Compare Bevan, n 1, p 183.

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Australia is simply a condition precedent needed to generate a GST liability, and in turn the imposition of GST on various subjects of taxation – goods included.217 The Macquarie Dictionary (3rd ed, 2001) paints a similar picture on the nature of “supply”.218 It confirms “supply” as a noun represents the mere fact of an action, namely (emphasis added): The act of supplying, furnishing, providing, satisfying; that which is supplied; a quantity of something provided or on hand, as for use.

Similarly, the verb “supply” is defined as meaning (emphasis added): To furnish (a person, establishment, place, etc) with what is lacking or requisite; to furnish or provide something wanting or requisite; to make up (a deficiency) or make up for (a loss, lack, absence, etc).

Substituting the definition of “supply”, as the term is used in the Macquarie Dictionary,219 into the composite expression that is “taxable supplies” enables us to unpack that expression in order to see what this really means. Accordingly, we get this: “to furnish or provide what is lacking or requisite for consideration, which includes any payment, or act, or forbearance, in connection with or in response to that which is supplied, in the course of furtherance of a registered enterprise that you carry on and is connected with Australia.” However, under a general conception and ordinary understanding approach, this raises more questions than it answers. Indeed, if anything, it completely begs the question, for it specifically requires one to ask “what exactly is the what which is said to be lacking and requisite?” or “what exactly is that something said to be lacking or requisite?”. A “supply” is utterly meaningless without first identifying the distinct something said to be lacking and requisite; Isaacs J was spot on when he observed the signification of “supply” depends entirely upon the context and subject matter dealt with. This corresponds with an earlier point that it is the “what” in the question “supplies of what for consideration?” that represents the real subject matter required to generate a GST tax liability, and, in turn, the imposition of GST on many disparate subjects of taxation. The “what” might be various kinds of goods insofar as the GST is an indirect tax on goods (and hence, a duty of excise); or various kinds of services insofar as the GST is an indirect tax on services (and hence, a services tax); or various kinds of real property insofar as the GST is an indirect tax on real property (and hence, a real property transactions tax), and so on. Of course, insofar as the GST is an indirect tax on various kinds of State imposts (and hence, a tax on a tax) there is no need for any consideration, as s 81-5 deems there to be consideration even when, in fact, there is no consideration when paying State (or federal) taxes. Nevertheless, it is only after one has identified the distinct subject being supplied that one can determine whether that subject falls within the GST tax 217

Back in 1999, it was generally understood that the GST had to be passed by the Commonwealth precisely because, as the High Court now defines excise duties, the States have no capacity to enact a tax on goods: Commonwealth, Parliamentary Debates, House of Representatives, 25 August 1999, p 9042 (Julie Bishop); 31 March 1999, pp 4818-4819 (Julie Bishop); Senate, 27 April 1999, p 4348 (John Quirke). Yet if the GST is held to be constitutional, then the States obviously have an easy way to break through the prohibition of s 90 of the Constitution. This is because if “a supply for consideration” (or something other than goods) happens to be the subject of taxation within the GST Act, then a 10% ad valorem tax on, say, the “supply” of newspapers, sugar or tea for consideration would not represent a collection of indirect taxes on newspapers, sugar or tea respectively. Rather, it would represent a tax on the “supply (of some thing) for consideration in Australia” – despite the fact that the practical effect of a tax on “taxable supplies” would be to feed indirectly into the price of each of these three subjects of taxation, if and when any of these subjects are rendered for a consideration at the point of supply. The States could simply “fill in the blank” by deeming any article (tea, tobacco, sugar, books, or any other item) to be “a supply”, thereby evading s 90 of the Constitution under the guise of taxing, not goods, but “supplies (of some unspecified, unidentified, unknown thing) for consideration”. Of course, giving the States a blank cheque to engage in such constitutional avoidance schemes has never been favoured by the High Court: R v Barger (1908) 6 CLR 41 at 101 (Isaacs J, dissenting); Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 at 469 (Dawson, Toohey and Gaudron JJ); Ha v New South Wales (1997) 189 CLR 465 at 497-499 (Brennan CJ, McHugh, Gummow and Kirby JJ).

218

Coles Supermarkets Pty Ltd v Westley Nominees Pty Ltd (2005) 60 ATR 52 at [114] (Kenny J).

219

Section 9-10 of the GST Act uses “supply” to signify the mere fact of some isolated action, namely, “the act of furnishing or providing something”: Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461 at [16] (Ryan, Heerey and Edmonds JJ). See also Databank Systems (1987) 9 NZTC 6213 at 6223 (Davison CJ): “to furnish with or to provide”; Carlton Lodge Club v CEC [1975] 1 WLR 66: “to furnish or to serve”; C&E Commissioners v Oliver [1980] 1 All ER 353 at 354 (Griffiths J): “the passing of possession in goods.”

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net. And obviously the exact subject being rendered for a consideration will vary from one series of supplies to another series of supplies, and from one set of indicia or circumstances of life to another (Proposition 10). Furthermore, even if one defines “supplies” as an aggregate stock or storage of something, one can still see that “supplies”, by definition, presupposes the existence of a range of necessarily separate and distinct subject matters: in each and every case there is that something, be it that good, that service, that income, or that swimming pool constructed in situ that happens to be in stock or storage. Indeed, from the point of view of each individual supplier, the subject of each and every supply involves a necessarily separate and distinct subject matter precisely because that good, or that grant of real property, or that income, or that service which is supplied is deliberately and carefully calculated to fill a distinct void or deficiency that exists in the marketplace. All this bolsters the characterisation of the GST, not as a direct tax on taxable supplies, but an indirect tax on many disparate subjects of taxation, just as duties of excise and customs were in the 18th and 19th century indirect taxes on many disparate subjects of taxation. Thus, given that virtually everything at some point in time can be provided or furnished, “a tax on what is lacking or requisite” or “that which is supplied” is, by definition, a tax on the whole of the heterogeneous, indeed sprawling, range of subject matters – the disparate and random X, Y and Zs being provided or furnished – and, hence, taxed at various points in time. Accordingly, when “something” (whatever that might be) is provided and furnished for consideration in furtherance of an enterprise, fear not – that “distinct furnished subject” will be taxed there and then. In short, “supply”, based on common understanding and general conceptions (Propositions 27-29), cannot be said to be a tax on a single homogenous subject matter, or even a potential subject matter in and of itself. Rather, a tax on “supplies” is – by definition – a tax on many random and heterogeneous things (be they goods, services, or real property) if and when those subjects happen to be provided or furnished at various points in time. So much emerges from the Explanatory Memorandum to the GST Act. Despite describing the GST as “a tax on supplies and importations”, it goes on to describe these verbs as temporal phenomena (that is, the relevant event or occasion which exposes various subject matters to taxation): GST is a tax on a supply or importation of anything – goods, services or anything else. A thing can attract GST each time it is supplied or imported along the commercial chain to its final consumption in Australia. GST is effectively borne by consumers when they acquire anything to consume. GST is remitted by suppliers who make supplies in carrying on their enterprise. Suppliers do not bear the GST because the tax is included in the price of what they supply.220

Putting aside the question how an avowed tax on “anything” could ever possibly be said to exhibit any unity of subject matter (Propositions 8-9), one can see that the Explanatory Memorandum openly concedes the following point: not only is the GST, like a duty of excise, imposed before any act of final consumption occurs, but when “a thing” happens to be supplied, that “thing” will be hit with GST. This is because, given the GST is “generally payable at each stage of commercial dealings (supplies) with goods, services or other things”,221 suppliers are forced to “remit” their GST liability onto a particular subject of taxation – be it goods, services, real property or anything else. Clearly, therefore, GST is not “attracted” to the commercial phenomena the GST Act calls “supplies”, but the specific “things” – the distinct goods, services, the various interests over land etc – that happen to be furnished or provided “each time” in the course of various commercial dealings. In other words, the GST is a broad-based indirect tax on many disparate subjects of taxation, subjects of which happen to all be taxed at the point of supply. Is the “act of supply” the subject of taxation? But is there any merit to the idea that the GST is taxing the act of supply? There is no obvious historical precedent where the mere fact of an action has been held to constitute the subject of taxation 220

Explanatory Memorandum to the GST Bill, p 6 (emphasis added).

221

HP Mercantile Pty Ltd v FCT (2005) 143 FCR 553 at 557 (Hill J).

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for the purposes of s 55. A customs duty might be described as a “tax on importations” (or the act of importation). But the real subject of taxation would be the concrete goods being taxed at the point of importation.222 The WST might be described as a “tax on sales” (or the act of sale). But really the subject of taxation would be goods at the point of sale.223 Equally, in our hypothetical “Land and Inheritance Tax”, the tax might be described as a “tax of valuations” (or the act of valuation). But the real subject of taxation would be land, any fixture attached to land, the estate of any deceased person 12 months before their death, or any other subject matter which is valued or appraised at some point in time. In each case, in order to determine what the tax actually falls on in each case, one must ask: “The importation of what, exactly? The sale of what, exactly? The valuation of what, exactly? The supply of what, exactly?”. All this suggests that a noun representing the mere fact of an action begs the question as to what is the true subject of taxation being taxed. Viewed in this light, a tax on supplies in the GST context is no more capable of being a subject of taxation than a tax on sales is the subject of taxation in the WST context, or a tax on importations is the subject of taxation in the customs duty (which s 55 itself assumes can impose taxes on a range of items of taxation: Proposition 14). Indeed, it seems that the argument that the GST is a tax on the act of supply ought to be rejected for the same compelling reason Isaacs J gave for why a customs duty is not a tax on the act of importation: I am unable to accede to the view presented that a customs duty is merely a tax on an operation, namely, the act of importation, and nothing more … The whole course of English precedent and authority appears to me to support the view that the tax is intended to fall, and does fall, on the goods in the same sense as is ordinarily understood by a tax on goods, and not on the mere act of importation. It is true that importation is essential to the claim for duty, but nowhere do we find that it is the intangible act of importation which is the subject of taxation, but always the concrete property imported.224

For similar reasons, the GST is not a tax on an operation – namely, the act of supply – and nothing more. Not a single judicial authority is cited for the proposition that the GST is a tax on the act of supply; and if the GST was a tax on the act of supply, then Parliament would surely have described the GST in those terms. However, as noted earlier, not a single Parliamentarian described the GST as a tax on the act of supply. Rather, virtually everyone across the political spectrum viewed the GST as an indirect tax on goods and an indirect tax on services. The whole course of Parliamentary debate back in 1999 proceeded on the assumption that the GST was intended to fall – and as a matter of practical operation does fall – on top of the price of goods or services. It is true that the making of “a supply” is essential in generating a GST liability, but nowhere does one find the intangible act of supply as being the focus of the political relations of both Houses of Parliament; rather, it is always the concrete goods, services or other things taxed. The fact this interpretation captures the substance of the GST Act is confirmed by everyday experience, namely, at the bottom of receipts which tell one how much GST is taken from consumers who represent the object of the tax. This suggests that GST is “attracted to” and “clings to” a concrete set of goods or services well before one happens to purchase a particular good or service. But if “importation”, like “supplies”, is not the subject of taxation, then what is it? The answer is: it is a taxing point. As Isaacs J went on to observe, a customs duty is a tax on imports (that is, a tax on goods when goods are imported), meaning: 222

AG (NSW) v Collector of Customs (NSW) (1908) 5 CLR 818 at 845-846 (Isaacs J), endorsed in Queensland v Commonwealth (1987) 162 CLR 74 at 90 (Gibbs CJ); 18 ATR 158. Of course, the High Court has interpreted the word “property” in s 114 of the Constitution as referring to only a direct tax on property, notwithstanding that, in common parlance, a customs duty is clearly an indirect tax upon goods: cf Gosford Meats Pty Ltd v New South Wales (1985) 155 CLR 368 at 413-414 (Dawson J).

223

See Cominos and Dwyer II, n 1 at 76 who draw an analogy between the verb “sale” in the WST context and the verb “supply”. As they correctly point out, the function of “supply” is little different from the role of “sale” or “application to own use” in the sales tax legislation. The terms did not of themselves identify the subject of taxation in the sales tax context. If “sale” provided the subject of taxation, then the “sale of land” would be the same “subject of taxation” as a “sale of goods”.

224

AG (NSW) v Collector of Customs (NSW) (1908) 5 CLR 818 at 845-846.

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Similarly, the making of a supply of something for consideration is the critical event or occasion, the condition precedent226 that triggers a GST liability and, in turn, the imposition and offsetting of GST on a particular subject of taxation. This becomes obvious when one remembers GST is imposed when suppliers provide and furnish something for consideration to someone who engages in the furtherance of a particular enterprise – once the GST liability is generated there and then, GST can be lawfully offset and levied proportionately to the price of goods, or services, or real property etc. An imprecise and familiar way of saying the same thing is that the GST is a tax on business transactions,227 but in substance the concrete subjects actually being taxed are the matters listed in s 9-10(2) of the GST Act. In other words, the GST is not a “direct tax on the act of supply”, or a “direct tax on supplies”. Rather, it is well accepted the GST is an indirect tax, a tax which “clings to” the price of a particular subject of taxation, or, as the High Court recognised in the excise context: It is in the nature of an indirect tax that it enters into the cost of the goods the subject of the tax and is borne by the consumers of the goods.228

Insofar as the GST is not a duty of excise, there is only one added qualification to the above remarks: the GST enters not only into the price of goods (one subject of the tax), but also into the price of services, real property transactions, financial supplies, contractual agreements, and State imposts (the other subjects of the tax). Indeed, the need for a separate GST Customs and Excise Act is entirely consistent with the idea that supply simply describes the event or occasion – the taxing point – which allows GST to be imposed on particular types of goods when they reach the hands of the final consumer.229 Some general observations With the above facts in mind, one can clearly see that the mere fact that the matters referred to in s 9-10(2) are illustrations of types of “transactions” (or “things”) which are within the concept of “supply” does not automatically deny the fact they are also subjects of taxation for the following reasons: (1) Given that “final private consumption” describes the incidence of the GST, and “supply” describes when a particular thing becomes liable for taxation, then various matters enumerated in s 9-10 of the GST Act are the only plausible candidates left in the prescribed criteria of liability which can tell us what the subject of taxation actually is (cf Proposition 21). Through a process of deductive reasoning, this conclusion becomes self evident. 225

AG (NSW) v Collector of Customs (NSW) (1908) 5 CLR 818 at 846.

226

Cominos and Dwyer II, n 1 at 76 (“taxing point”); Cooper G and Vann R, “Implementing the Goods and Services Tax” (1999) 21 Sydney Law Review 337 at 345-347 (“critical event”); Denham M, “The Identification and Characterisation of Taxable Supplies for GST Purposes” (2000) 3(4) Journal of Australian Taxation 261 at 262 (“supply events”); Millar R, “Time is of the Essence: Supplies, Grouping Schemes and Cancelled Transactions” (2004) 7(2) Journal of Australian Taxation 132 at 137-138; ACP Publishing Pty Ltd v FCT (2005) 142 FCR 533 at 550 (Gyles J) (“taxable event”). Note also the making of a supply is regarded as the chargeable or taxable event even for United Kingdom VAT legislation: CCE v Thorn Materials Supply Ltd and Thorn Resources Ltd [1998] STC 725 at 731 (Lord Nolan); Revenue and Customs v Aimia Coalition Loyalty UK Ltd [2013] UKSC 15 at [136] (Lord Carnwath); Baxendale v HM Revenue and Customs [2009] EWCA Civ 831 at [12], [22] (Patten LJ); HJ Glawe Spiel v Finanzamt Hamburg-Barmbek-Uhlenhorst [1994] STC 543 at [20] (Advocate General Jacob). 227

Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461 at 477 (Ryan, Heerey and Edmonds JJ).

228

Roxborough v Rothmans Pall Mall Australia Ltd (2001) 208 CLR 516 at 528 (Gleeson CJ, Gaudron and Hayne JJ) (emphasis added); cf Cominos and Dwyer II, n 1 at 77.

229

Once again, claiming the act of supply is the subject of taxation is inconsistent with the broader tripartite GST scheme. A customs and excise duty must be separated from the GST (General) Act due to the express constitutional mandate found in the second paragraph of s 55 of the Constitution, which provides that laws imposing duties of customs shall deal with duties of customs only and laws imposing duties of excise shall deal with duties of excise only. However, if the subject of taxation is the act of supply, a separate Custom or Excise Act would not be necessary. But separate Acts are necessary precisely because, at a minimum, one of the subjects of taxation the GST Act happens to capture is goods. The act of supply is obviously a different subject of taxation than goods, meaning the States could impose their own tax on the act of supply.

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(2) “Supply”, without more, really means nothing at all. Therefore, one is always forced back to asking “the supplies of what is being taxed, exactly?” as an essential step in the quest for a level of meaning which carries sufficient precision. For this reason, Parliament must provide a clear and precise answer to this natural question in order to clarify the scope of “supply”. But Parliament can only safely define the scope of the word “supply” (and hence the scope of the GST tax base) by expressly identifying the subjects it wants taxed and, in turn, exempting what it does not want taxed. Section 9-10(2) thus provides the answer to that question “what exactly is being supplied and what exactly am I directing my consideration toward?” and hence an answer to the question “what exactly is being taxed?” by expressly enumerating the various supply events which trigger the imposition of GST on various subjects. These supply events in s 9-10(2) fill in the blank by specifically identifying what the various subjects of taxation will be – that is, by clarifying (in an inclusive and overlapping way) the variety of subjects which the GST seeks to tax.230 (3) A practical reading of the GST vindicates this interpretation. Because the GST Act is a tax on a range of disparate things (from stolen second hand cars, to contraceptives, to realty transactions), the GST Act needs to group into discrete pockets all the sprawling “stuff” being taxed. This is where s 9-10(2) comes in. It identifies discrete, manageable supply events which make the GST business-friendly: (a) When a registered enterprise connected with Australia supplies a $50 book, it will naturally go to the list in s 9-10(2) to see what constitutes a “supply”. Such a supplier would first ask itself what is the subject of the supply, that is, what exactly has been provided or furnished? It will note the subject of the supply is a book. The supplier would then look at the definition of “supply” in s 9-10(2) and notice that para (a) includes goods. The supplier would then ask itself are books an example of tangible property? The answer would naturally be: yes, they are.231 Under the statutory scheme, books are translated into being goods. Immediately after the goods are rendered for a consideration at 10% of their value, the $5 GST liability is created. It is there and then immediately offset and imposed onto the book itself, thereby raising it to a new price of $55 per book – hence, why the GST is generally understood, in substance, to be an indirect tax on goods. (b) The same analysis applies to real property. For example, a registered enterprise connected with Australia might need to ask: what is the subject I have just furnished or provided for consideration? The answer: a long-term lease. As a long-term lease signifies an interest in land, a long-term lease is converted into real property under the GST Act. As soon as this real property is rendered for a consideration of one-tenth of its market value, a GST liability is created and is imposed on the value of that lease, meaning the GST is, in substance, an indirect tax on real property.

230

In reality, however, almost 99% of transactions would fall into the matters listed in s 9-10(2) rather than the generalised definition found in s 9-10(1). There might only be a few items which fall outside this definition of supply.

231

Although courts have called the GST “a tax on supplies”, they have also recognised that one must always identify the “subject matter” or “true subject” of any supply: Saga Holidays Ltd v FCT (2006) 149 FCR 41 at 52, 91 (Conti J); Travelex Ltd v FCT (2009) 178 FCR 434 at 445-447 (Stone J); FCT v Gloxinia Investments (Trustee) (2010) 183 FCR 420 at 427-429, 432 (Dowsett, Kenny and Middleton JJ). Similarly, overseas jurisdictions have also recognised the need to identify “what” exactly is being supplied: British Railways Board [1977] 2 All ER 873 at 876 (Lord Denning); Chatham Islands Enterprise Trust [1999] 2 NZLR 388 at [28] (Tipping J). Once one has identified the true subject of any supply, one must then ask whether that subject falls into one of the “transactions” or “species” of supply identified in s 9-10(2) of the GST Act: Saga Holidays Ltd v FCT (2006) 149 FCR 41 at 91 (Conti J); FCT v Gloxinia Investments (Trustee) (2010) 183 FCR 420 at 427-428 (Dowsett, Kenny and Middleton JJ); Travelex Ltd v FCT (2010) 241 CLR 510 at 518 (French CJ and Hayne J). The very fact the judiciary is forced to delineate “supplies” into distinct or specific “subject matters” shows that supplies in and of itself is meaningless without first identifying the “true subject” attached to any act of supply.

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(c) A similar exercise would be conducted on the supply of any of the matters listed in s 9-10(2) of the GST Act, or for that matter any other residual thing not listed in s 9-10(2), and this interpretation clearly accords with the characterisation the GST as being a broad-based indirect tax on a variety of distinct subject matters.232 (4) For over 60 years, nine separate transactions involving the word “sale” were regarded as also being nine separate subjects of taxation. Specifically, the taxation of hire-purchase agreements for goods, the taxation of transactions involving the letting out of machines on the condition of payment of royalties, and the taxation of contracts to manufacture goods for another out of materials owned by someone else, were all regarded as transactions (or “classes” or “species” of sales) which were regarded as necessarily separate and distinct subject matters for the purposes of s 55.233 Thus, it is hardly unprecedented to say that the seven different types of “transactions” involving the term “supply” can constitute seven distinct subjects of taxation, given that very similar transactions involving the term “sale” were also regarded as being different subject matters for WST purposes.234 Furthermore, one can see that the everyday usage of the word “supply” is fundamentally different from the everyday usage of words like “income” or “fringe benefits”: (1) In ordinary parlance, it is rather unusual (indeed, it seems to make little or no sense) to ask the question “the fringe benefits of what?” or “the income of what?”. Rather, one asks “what kinds of fringe benefits did you receive from your employer?” or “where do you derive your main source of income from?”. But suppliers must ask the question “the supplies of what?” to know what they must provide or furnish to their customers. The basic rules of English grammar explain why this is the case – “fringe benefits” and “income” are both nouns representing a concrete bundle of rights, while “a supply” represents a verb, a mere fact of an action. One must identify what the distinct subject or thing being demanded or requested before “a supply”, an action, can even take place. Thus, the phrase “fringe benefits” is delineated into various “kinds” of fringe benefits (Proposition 29). The noun “income” represents the flow of money that “comes in” over time and explains why people say income “derived” from a particular source (Proposition 28). But one must always define the “subject” or “thing” attached to each and every act of “supply”. Because one must therefore identify the true subject matter of any supplies, “a tax on supplies” is, by definition, a tax on a range of disparate subject matters being provided or furnished at various points in time. (2) In the course of analysing the ordinary meaning of “fringe benefits”, the High Court was able to identify a clear “genus”, namely, benefits made in relation to employment amongst the various “species” being taxed (the species being travel benefits, debts waiver benefits, housing allowances, and loans benefits: Proposition 29). But “supply” in and of itself, does not disclose a single, unifying genus. This is because the answer to the question “supplies of what for consideration?” specifically requires Parliament to nominate a genus to be attached to each and every supply, which in turn allows the executive government to “tack” on multiple genuses if and when it sees fit, including goods (which itself consists of various species or kinds of goods like books, newspapers, tea, sugar, and tobacco); services (which itself consists of various species or 232

Note also the GST Act then spends time exempting various kinds of goods (such as precious metals), services (such charitable or health services), or real property (for example, farmland) from taxation, which would otherwise fall into the various subject matters listed in s 9-10(2).

233

Mitchell EM KC, Opinion A 9460 (18 July 1930) p 3; Re Dymond (1959) 101 CLR 11 at 18 (Fullagar J); Commonwealth, Parliamentary Debates, House of Representatives, 10 March 1959, p 469 (Harold Holt); Commonwealth, Parliamentary Debates, Senate, 23 September 1981, p 941 (Peter Durack) (quoting Sir Maurice Byers QC).

234

To be sure, the WST was streamlined into three bills: the Excise, Customs and General Bills. But WST was a tax on goods only. However, the GST taxes services, real property, State taxes, financial assets – meaning the GST tax base goes well beyond simply a tax on goods: Commonwealth, Parliamentary Debates, Senate, 21 April 1999, p 4018 (Brian Harradine). Furthermore, as was correctly pointed out by Cominos and Dwyer II, n 1 at 77, the term “supply” compels you to ask “of what?” far more forcefully than the word “sale” ever did. The term “sale” is a relatively precise legal and everyday concept. The term “supply” is much more vague. One is compelled to ask “of what” as an essential step in the quest for a level of meaning which carries sufficient precision.

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kinds of services like financial services, funeral services, health services, and disability services); real property (which consists of various species or kinds of real property transactions involving leases, easements, and any equitable or contractual interest in land); and State imposts (which consist of various species or kinds of taxes like fire services levies, airplane levies, and environment management charges). (3) Points 1 and 2 might become even clearer via the following hypothetical example: imagine if for whatever reason a 50% tax on income and a 30% tax on fringe benefits were combined into a single tax act by defining “supply” to include “the supply of fringe benefits of any kind” (that is, benefits made in relation to employment) or “the supply of income from whatever source derived” (that is, substantial gains through exertion, work or through investments). Is “supplies” the single subject of taxation, or are income and fringe benefits two separate subjects of taxation? “Supplies” cannot be the subject of taxation precisely because what is being taxed – the real, concrete thing or bundle of rights being provided and furnished – is either income or fringe benefits (two subject matters attached to any supply). Thus, there is a fatal error in saying the GST taxes different “kinds of supplies” just as fringe benefits “taxes different kinds of fringe benefits”; namely, when one says the GST taxes kinds different supplies what one means is the “different things capable of being provided or furnished (and hence taxed) at various points in time”. “Supplies”, without more, fails to identify what exactly is being provided or furnished. However, neither a fringe benefit nor income is a temporal event or phenomenon; they are real, concrete “things” in and of themselves. (4) It should be noted that if s 81-5, or any of the specified matters in s 9-10(2) of the GST Act, were suddenly inserted into a law imposing a duty of excise,235 those matters would easily be invalidated by the High Court. Why? Because one cannot deem one distinct subject of taxation to be another distinct subject of taxation (Proposition 35). Parliament cannot simply deem the supply of services for consideration to be one and the same subject of taxation as the supply of goods for consideration; a services tax is obviously a distinct kind of tax from a duty of excise.236 Nor can one deem the supply of real property for consideration to be the same subject as the supply of goods for consideration; a real property transaction tax is obviously a distinct kind of tax from a duty of excise. Nor can Parliament deem that the supply of any payment of State taxes without consideration to be the supply of goods for consideration; a tax on a tax is obviously a distinct kind of tax from a duty of excise. Yet suddenly when an indirect tax on services (tax 1), an indirect tax on real property (tax 2), and an indirect taxes on a State imposts (tax 3) are all tacked together under a single omnibus piece of tax legislation, one is required to somehow believe these indirect taxes are one and the same subject of taxation called “a supply (of some thing) for consideration”. Thus, the GST Act, when viewed through the prism of the duties of excise limb of s 55, is exposed for exactly what it is in substance: an agglomeration of indirect taxes packed together into a conglomerate “supertax” called the “GST”. However, to further appreciate why “supply” cannot be a subject of taxation in and of itself, one must examine the number of constitutional absurdities which might arise if “supplies” were treated as being “one subject of taxation only”.

In search of a limiting principle No doubt, in the event a s 55 challenge is mounted against the GST, one should expect the Commonwealth to remind the High Court that it has uniformly refused to give the “one subject of taxation” limitation any narrow and inflexible application (Proposition 25). 235

A New Tax System (Goods and Services Tax Imposition – Excise) Act 1999 (Cth), s 3.

236

Cominos and Dwyer II, n 1 at 73, noting that because of the duty of excise limb in the second paragraph of s 55, “Parliament simply cannot combine a tax on goods with a tax on services”; Owen v DFCT [1995] FCA 1645 at [9] (Davies, Kiefel and Spender JJ): “It was held that the legislation imposing that tax infringed s 55 of the Constitution, in essence because the legislation sought to impose a tax upon services in legislation which generally imposed a tax on goods”; Lane, n 24, p 581: “Neither is a tax on services a tax on goods, say, a tax on hotel or motel accommodation for intra-State travellers, or a tax on restaurateurs, or a tax on dry cleaners, or more clearly, a tax on travel agents.”

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But this conveniently overlooks the fact that Proposition 25 was uttered in a radically different factual context than the one before us. First, the GST Act, unlike the Income Tax Act 1922, is not being challenged during wartime (Proposition 26). Invalidating the GST cannot be said to be a needless distraction to any concerted wartime effort. Secondly, in the case of the Income Tax Act 1922, it was recognised by numerous judicial authorities, and not contradicted by a single Member of Parliament, that a tax on income derived from property and capital gains was just that – a direct tax on income alone (Propositions 15, 28), with no accusations of financial aggression on part of the Commonwealth being raised with the capital gains component of the federal income tax (Proposition 2). However, in case of the GST, members across of the political spectrum acknowledged that the GST was an indirect tax on goods and an indirect tax on services, with the latter tax being said to impose a disproportionate burden on Queensland, Tasmania and Western Australia, States which rely heavily on the tourism sector to generate employment. It is also acknowledged by academic and judicial authorities that because the word “supply” is a word of such elastic meaning that its signification requires one to specifically identify the context and subject matter being dealt with. Thirdly, the assertion that “supplies” is a single subject of taxation is an assertion which proves too much (indeed, “supply” is so broad that the subject matter dealt with might very well be income itself). After all, if “supplies” is a single subject of taxation, then a 15% flat tax on the “supply” of income for consideration must be one aspect of the same single subject of taxation as: (1) a 10% tax on the value of the “supply” of goods for consideration; (2) a 12% tax on the value of the “supply” of a swimming pool constructed in situ for consideration; (3) a 5% tax on the market value of the “supply” by way of sale or transfer of any parcel of land for consideration; (4) a 6% tax on the “supply” of wages paid from any employer to any employee for consideration; (5) a tax of 47% on the “supply” of fringe benefits for consideration, or deemed consideration, from any employer to any employee; (6) a tax of $100 on any duly stamped document relating to the sale of land, any business or other form of dutiable property at the point of “supply”; and (7) a 15% tax on the value of the “supply”, at the time of death, of any property that passes on the death of predecessor to the successor by force of law. The framers could have spared us all the trouble of ever inserting the single subject of taxation limit if only they had known that an income tax, a duty of excise, a land tax, a land transfer tax, a payroll tax, a fringe benefits tax, stamp duties and succession duties could all be subsumed into “A New Tax System” which, conveniently enough, happens to impose a tax on single subject of taxation called “supplies” (whether with or without consideration). Indeed, if such historically disparate subject matters can really be lumped or tacked together into a conglomerate “supertax” simply by deeming everything to be “supplies”, then s 55 may as well be deleted from the Constitution. And it is the third and last point which is extremely important: the High Court must not forget that taking Proposition 25 too literally “can build on itself to defeat the limitations of s 55”.237 Thus, debate over the constitutionality is not about whether the High Court will adopt any narrow or inflexible approach toward s 55. We have passed that bridge, given (as noted above) the GST is clearly distinguishable from other Commonwealth taxes that have survived the relevant s 55 prohibition. Rather, this debate is about an important point of constitutional principle – namely, what, if anything, would be left of the second paragraph of s 55, including the duties of excise limb of s 55,238 if “a supply for consideration”, or its plural form “supplies”, is held to constitute a single subject in and of itself? 237

Dabner, n 1 at 75. More recently, Kirby J expressed similar concerns; see Permanent Trustees Australia Ltd v CSR [2004] HCA Trans 43 at 2173-2174, 2195-2198: “Parliament cannot be final by reference to the nomenclature that it chooses. That is the whole point of the rule of law … I just do not think that [the alleged singleness of a subject] can be taken at face value, because it has to conform to the Constitution. That requires having a theory about what the constitutional provision is aimed at doing, understanding its history and purpose and its function in the modern Australian Constitution.”

238

If “supplies” is a single subject of taxation, then the “supply of goods” would be the same single subject of taxation as “the supply of an in situ swimming pool”. Of course, the High Court rejected the proposition that a tax on the sale of goods (which is a duty of excise) and a tax on the supply of an in situ swimming pool (which is a tax on land) is the same single subject of taxation (Proposition 35). Indeed, insofar as goods are concerned, the GST Act simply deletes the verb “sale”, and inserts the verb “supply”, with a tax on the supply of goods still being a duty of excise. But if “supplies” is a subject of taxation in and of

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Certainly, one striking feature of the word “supply” is its extraordinary breath of coverage. To be sure, some voluntary conduct is still necessary before there can be a taxable supply.239 Nevertheless, “supply” is “a very general word and has a wide application”.240 Indeed, it seems hard to deny that “the word [supplies] is regarded by the Courts as one of wide signification and that primarily it means to distribute, to furnish, to serve”241 – in fact, Knox CJ thought how far its scope “ordinarily goes can hardly be defined”.242 Unsurprisingly, therefore, the courts have noted “supply”, as defined in the GST Act, is “extremely broad”.243 Similarly, academic commentators have noted that the concept of “supply” under the GST Act is capable of taxing virtually “everything under the sun”,244 while both opponents and even some supporters of the GST Act described it as a tax on almost everything.245 All this gives rise to a paradox: given that almost everything of value can at some point in time be furnished or provided, how exactly then can an indirect tax on almost everything ever be “fairly regarded” (Propositions 9-10, 32) as being a tax on a single subject?246 It is submitted that “supply” cannot be a subject of taxation in and of itself without resulting in these striking, indeed absurd, consequences that render the single subject restriction as nothing more than a constitutional dead letter going forward: (1) The validity of the GST Act depends on the constitutionality of the following tripartite drafting formula: “all taxable supplies [under the GST General Imposition Act] – minus taxable supplies insofar as they are not a customs duty [under Customs Imposition Act] or a duty of excise [under the Excise Imposition Act] – equals one subject of taxation only”.247 However, not only does the Constitution itself recognise that “supplies” insofar as they are customs or excise duties can deal itself, the federal government can tax an in situ swimming pool in what is in substance an Excise Act, simply by saying it is imposing a tax on a single subject called “a supply”, rather than a tax on two distinct subjects of taxation, namely, “goods” and “land” (Proposition 35). In other words, if “a supply” can be a subject of taxation, the High Court got Mutual Pools & Staff Pty Ltd v FCT (1992) 173 CLR 450 hopelessly wrong. Thanks to Terry Dwyer and Leslie Zines for this point. 239

Shaw v DOH (No 2) (2001) 159 FLR 322 at 324-325 (Underwood J); 46 ATR 242; Interchase Corporation Ltd v ABN 010 087 573 Pty Ltd (2000) 45 ATR 445; Walter Construction Group Ltd v Walker Corporation Ltd (2001) 47 ATR 48 at 49 (Hunter J).

240

Bennett v Cooper (1948) 76 CLR 570 at 583 (Dixon J).

241

Graham v Sloan [1943] NZLR 292 at 297 (Myers CJ).

242

Symes v Stewart (1920) 28 CLR 386 at 389 (Knox CJ).

243

FCT v Luxottica Retail Australia Pty Ltd (2011) 191 FCR 561 at 563 (Ryan, Stone and Jagot JJ); 79 ATR 768. See also C&E Commissioners v Oliver [1980] 1 All ER 353 at 354 (Griffiths J): supply is a “word of the widest import”; Databank Systems Ltd (1989) 11 NZTC 6093 at 6102 (Richardson J): supply “breathes comprehensiveness”; Shaw v DOH (No 2) (2001) 159 FLR 322 at 325 (Underwood J); Saga Holidays Ltd v FCT (2005) 149 FCR 41 at 61, 67 (Conti J); Saga Holidays Ltd v FCT (2006) 156 FCR 256 at 265, 268 (Stone J, with Gyles and Young JJ agreeing); Travelex Ltd v FCT (2009) 178 FCR 434 at 441 (Mansfield, Stone and Edmonds JJ); FCT v Gloxinia Investments (Trustee) (2010) 183 FCR 420 at 425 (Dowsett, Kenny and Middleton JJ): “The need for such exemption provisions arises from the very wide definitions of supply and taxable supply in ss 9-5 and 9-10 of the GST Act”; Reglon Pty Ltd v FCT (2011) 81 ATR 599 at [21] (Emmett J). 244

Trombitas E, “GST: How Broad is Supply – a Perspective on Qantas” (2012) 86 ALJ 675 at 682. Compare Bevan, n 1 at 174, 181; Cominos and Dwyer II, n 1 at 71, 76-77; Denham, n 226 at 262.

245

See, for example, Commonwealth, Parliamentary Debates, House of Representatives, 20 October 1999, p 11965 (Joe Hockey (emphasis added): “With a GST, one-eleventh of everything you pay will be tax”; 2 December 1998, pp 1144-1145 (Simon Crean), 1164 (Craig Emerson), 1171 (David Charles), 1091-1093 (Simon Crean); 7 December 1998, p 1503 (Simon Crean); 8 December 1998, pp 1585 (Wayne Swan), 1609 (Michael Lee); 9 December 1998, pp 1675 (Kim Beazley), 1689 (Sid Sidebottom), 1714 (Simon Crean); 10 December 1998, pp 1823 (Janice Crosio), 1838-1839, 1854-1855, 1857, 1865 (Simon Crean); 16 February 1999, p 2846 (Wayne Swan); 18 February 1999, pp 3149-3151 (Simon Crean), 3166 (Julia Irwin), 3184 (Anthony Albanese), 3189 (Kelvin Thomson); 12 May 1999, p 5204 (Simon Crean); 12 August 1999, p 8653 (Simon Crean); 20 September 1999, p 10915 (Simon Crean); 20 October 1999, pp 11959-11964 (Simon Crean); 24 November 1999, p 12574 (Michael Hatton). For the same point being made in the Senate see Commonwealth, Parliamentary Debates, Senate, 20 April 1999, p 3829 (John Faulkner); 22 April 1999, p 4153 (Kay Patterson); 28 June 1999, p 6598 (Peter Cook); 29 June 1999, p 6822 (Peter Cook); 23 August 1999, p 7518 (Peter Cook).

246

Cominos and Dwyer II, n 1 at 77.

247

In other words, all taxable supplies, as long as these taxable supplies are not duties of excise, equals a single subject of taxation: Economic Legislation Estimates Committee, Parliament of Australia, Canberra, 8 June 1999, pp E189-E193, E216-E227 (Mr Greg Smith): “There are then three types of supply that we are required to take into account, which is why there are three imposition bills”; Cominos and Dwyer I, n 1 at 591; Cominos and Dwyer II, n 1 at 74: “The GST Imposition Bill does

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with multiple disparate subjects of taxation (such as supplies “of” newspapers, sugar, tea, tobacco etc: Proposition 14), but it also seems clear, by necessary implication, that there cannot be a deemed subject of taxation created by Parliament effectively saying “everything and anything else other than customs and excise equals a single subject” or “an indirect tax on everything other than goods is one subject” since that would imply the one subject of taxation limit would never have any serious work to do. Indeed, all this suggests that (a) it is perfectly permissible for Parliament to impose under an omnibus “supertax” a number of indirect taxes on a number of disparate subjects of taxation, as long as one of the multiple subjects not being taxed is goods; and (b) federal Parliament is able to, in effect, “tack” together different kinds of direct and indirect taxes under the pretext of taxing the conglomerate concept of “supplies”, as the hypotheticals in points (4) and (5) below clearly illustrate. Little wonder, therefore, that the Explanatory Memorandum of the GST Act essentially reads the one subject of taxation limit out of existence when it claims all s 55 requires is “that laws imposing a duty of customs and laws imposing a duty of excise must be in separate Acts”.248 “Sir Edmund Barton, Sir Samuel Griffith, Sir John Downer and their fellow Convention delegates would be surprised to discover they were debating an empty requirement”.249 (2) The ever-changing circumstances and indicia of life test can also be dropped from s 55 jurisprudence (Proposition 10). After all, what plausible indicia or circumstances of life could be said to be left to exist once the High Court accepts that almost everything – whether physical or as a matter of law, whether personal or proprietary, whether tangible or intangible, whether found in the retail market or the property market, or be it a benefit or a hindrance – can be subsumed under the vague umbrella term that is “supply”? Indeed, a verb which is generally understood, and a tax which is politically recognised even by its supporters, as capturing an almost limitless number of transactions encountered in various circumstances or indicia of life, appears, a fortiori, to be the very definition of a tax on a collection of matters necessarily separate and distinct (Proposition 8). (3) As suggested earlier, the role of history would also become meaningless, given the concept of “supply” is capable of taxing subject matters which would be clearly regarded as necessarily separate and distinct subjects of taxation back in 1900 (cf Proposition 31). For example, around the turn of the 20th century, several States imposed taxes on the total value of the sale or transfer of “real property”250 in exchange for consideration. Indeed, the only difference between such early colonial taxes on the “sale” of real property in exchange for consideration and a hypothetical tax on the “supply” of real property by way of sale in exchange for consideration is that the latter is imposed at the point of supply rather than the point of sale, a distinction without a difference precisely because the difference between sales and supplies is not one in which any neat not tax all supplies. Rather it is confined to supplies that are not subject to customs duties or excise.” If the GST were to be upheld, then that would seem to suggest there are two subjects of taxation imposed by the GST Act: goods (insofar as the GST is an excise or customs duty) and everything which is not goods (insofar as it is imposed by the GST General Act). 248

Explanatory Memorandum to the GST Bill, p 1.

249

Compare Cominos and Dwyer I, n 1 at 590; Cominos and Dwyer II, n 1 at 75.

250

Commonwealth v New South Wales (1906) 3 CLR 807 at 817 (Barton J), noting State Act 1898 (NSW), s 4 and Sch 2 imposes “a duty on the conveyance or transfer on sale of real property of 10s for every £100 of the amount of the consideration money”; Re Stamps Acts (1920) 27 CLR 334 at 334-335, noting the Stamps Act 1918 (Vic): “Every sale of real property shall be chargeable with ad valorem duty upon consideration thereof”; R v Bullfinch Pty (WA) Ltd (1912) 15 CLR 443 at 450-451 (Higgins J), noting the Stamp Act Amendment Act 1905 (WA) and Stamp Act 1882 (WA) “imposes a tax on every conveyance or transfer on sale of any property where the amount or value of the consideration for the sale … exceeds £25, for every £25 of the amount or value of the consideration 2s 6d”. Obviously, the subject of taxation here is not “sale of consideration” or “supply of consideration”, which are merely conditions precedent to determine the amount of tax which can impose on a particular subject, which in this case is real property. Regarding real property as a subject of taxation, see AG (Qld) v AG (Cth) (1915) 20 CLR 148 at 162 (Griffith CJ): “The considerations to which I have already adverted show that the subject of taxation is the interest of the lessee in the land.” One reason real property is exempt from the European style VATs is precisely because VAT is a subject of taxation which is already heavily taxed by other taxes: Poddar S, “Taxation of Housing Under a VAT” (2010) 63 Tax Law Review 443.

256

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distinction can be drawn.251 Such a tax could easily be merged with a tax on the “supply” of goods for consideration because (so it turns out if the GST is constitutional) a tax on goods for consideration is essentially one and the same subject of taxation as a tax on real property for consideration! (4) Something akin to the Paper Duties Precedent that s 55 was designed to prevent (Proposition 2) could have been perpetrated at the very inception of the Commonwealth. Imagine a situation where the new Barton government anticipated that the Senate would be deeply hostile to a new tax on newspapers, indifferent to a tax on real property or a tax on tea, but strongly supportive of a tax on sugar and a tax on any duly stamped document. How could the executive government bundle together all these different subjects into a single measure, thereby avoiding the need to send these taxes up as separate bills in the event that one of these five subjects was rejected by the Senate? Simple: just “tack” these five separate bills together into a single tax bill for a new hybrid “form” or “kind” of “supertax” called “Income and Tea Tax” (ITT), which imposes a tax on the making of supplies for consideration by any registered public entity or private enterprise connected with Australia; that is, it imposes a tax on “taxable supplies” (the collective name or label given to the group: Proposition 7). Next, define “supplies” in a self-serving way, namely, as including the “supply” of tea; the “supply” of newspapers (or, perhaps more precisely, the “supply” of any paper, pulp or fibre used to produce or print newspapers); the “supply” of sugar; the “supply” of income from employer to employee; and the “supply” of any duly stamped document or instrument transferring, granting or conveying any form of property whatsoever whether with or without consideration, perhaps setting different tax rates or legal rules for each distinct type of “supply”.252 The executive government could easily bypass the requirements of s 55 by claiming the single subject of taxation is “supplies for consideration in Australia” – notwithstanding “supplies” is utterly meaningless without identifying what the distinct subject matter attached to any act of supply is, and notwithstanding that there might be a vigorous protest in the Senate that the proposed bill is in substance a tax on five disparate subjects of taxation, with at least one of the five subjects (newspapers) being highly offensive to the people of the States who are represented in the Senate. Thus, saying the GST passes constitutional muster is akin to saying that it would be permissible from the outset of the Commonwealth to repeat, in substance, the Paper Duties Precedent via a very simple drafting technique, namely, by deeming everything to be “a supply” (cf Propositions 1-2, 7, 9). So much for the proposition that Parliament cannot contravene, by any definition or provision it may adopt, the provisions found within the Constitution (Propositions 7, 35). (5) The proposition that a tax on furniture, a tax on ships, and a tax on land are taxes on three separate subjects (cf Propositions 8, 35) would also become meaningless once “supplies” is treated as a single subject. Imagine a situation where a number of key Independents in the Senate put the executive government on notice that they will strongly support a new tax on land, vigorously oppose any proposed tax on ships because the States they represent are heavily dependent on exports, but remain lukewarm on a new tax on furniture because the States they represent are only somewhat dependent on manufacturing. But also imagine that the Senate is forced to accept the entire agglomeration because the executive government has chosen to “tack” together the taxes the Independents dislike with the one tax they really do like, because the executive government decides to introduce a new omnibus “form” or “species” of “supertax” which exists in over 150 other countries, called “A New Tax System – Furniture and Ships Tax” (FST). Like the GST, the FST purports to be a tax on “taxable supplies” (the collective name or 251

Symes v Stewart (1920) 28 CLR 386 at 389 (Knox CJ).

252

For example, an amount of three pence might be imposed on the “supply” of every newspaper for consideration; a duty of 7% might be imposed on top of the value of the “supply” of sugar for consideration; a duty of 21% might be imposed on the value of any “supply” of tea for consideration; 10 pence might be taken out for every pound of income “supplied” for consideration; and a tax of 10 pounds might be imposed at the point of “supply” of any stamp document or instrument, whether for actual consideration or a deemed consideration. The substance of any such tax on “taxable supplies for consideration” (the collective name given to the group: Proposition 7) would be to impose a duty of excise on newspapers, sugar and tea (taxes on three separate subjects of taxation) plus an income tax and a stamp duty respectively.

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label given the group of distinct subjects being taxed: cf Propositions 7, 35). In fact, the FST legislation defines “taxable supplies” the same way the GST defines “taxable supplies”; however, unlike the GST Act, “supply” in the FST legislation is then exhaustively defined as including the “supply” of furniture (which is described by several Senators as being, in substance, an indirect tax on furniture), the “supply” of a swimming pool constructed in situ (which is also described in the Senate as tantamount to a tax on land), and the “supply” of ships (which is attacked in the Senate as being a hateful indirect tax on ships that discriminates against the export sector of the smaller States). Thus, saying the GST and the FST survive constitutional muster would, in effect, be tantamount to saying it is permissible for any executive government, past or present, to “tack” together all these distinct and disparate subject matters under the pretext of taxing “taxable supplies”. This is all in spite of the fact that a tax on “supplies” requires one to delineate specifically these “supplies” into separate and distinct subject matters (in this case, furniture, land and ships: notice one is always driven back to asking the question “supplies of what for consideration is being taxed in Australia?”);253 despite any federalism-based protests in the Senate; and despite the fact the tax is actually embedded and incorporated into the price – not of some intangible or amorphous legal concept called “a supply of some thing for consideration” – but the real, tangible things people actually buy in the marketplace, be it a fleet of ships, a piece of furniture or a tract of land with a swimming pool constructed within it. Of course, such clever drafting devices would never be tolerated in the context of other constitutional restrictions; nor should it be tolerated in the s 55 context (cf Propositions 7-8). Indeed, what hypotheticals (4) and (5) above clearly illustrate is how the concept of “a supply for consideration” would result in “easy subterfuges and unreal distinctions”254 that would turn s 55 into nothingness, all while exploiting the “relative weakness”255 of the Senate against an executive government which has the confidence of the House of Representatives. Indeed, if the above hypotheticals (all inspired by the GST Act) are held to be constitutional, the Senate really would be put in “the same position as some almost impotent post-Asquithean House of Lords”.256 It would certainly represent the ultimate triumph of form over substance because verbs like “supply” naturally require one to ask “supply of what, exactly?”, meaning any future government could easily bypass the requirements of s 55 by simply choosing a term which is so infinitely broad and malleable as to be completely devoid of any real meaning, at least until the House of Representatives self-servingly provides an answer to the question “of what?”. This chameleon-like quality is clearly a salient characteristic of the verb “supply”, a word of “such elastic meaning that its signification must depend entirely upon its context and the subject matter dealt with”.257 Thus, under the pretext, indeed the necessity, of “filling in the blank”, any government could cunningly define “of what?” in any way it pleases by “tacking” onto any piece of tax legislation any number of subjects it sees fit – be they services, income, tea, wages, stamped documents, real property, intangible property, or financial supplies. 253

Unlike death in the case of an estate duty, notice also that there are no indicia or circumstances of life which actually unite the three subjects together (cf Propositions 8-10). All that unites the subject matters is mere fact of their notional existence – that is, the mere fact these subjects have furnished and entered particular marketplace for ships or land or furniture – but otherwise the subjects have absolutely no other logical or rational connection with one another. The subjects taxed are completely arbitrary. Furthermore, unlike an estate tax, there is no popular or widespread historical recognition of a “supply tax”, nor has a verb like “supply” ever been historically regarded as a subject of taxation in and of itself.

254

Compare Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR 263 at 304 (Dixon J).

255

Williams v Commonwealth (2012) 248 CLR 156 at 205 (French CJ).

256

Williams v Commonwealth (2012) 248 CLR 156 at 317 (Heydon J).

257

Symes v Stewart (1920) 28 CLR 386 at 389 (Isaacs J) (emphasis added). One here is reminded of Lewis Carroll, Through the Looking Glass (1871) Ch 5: “‘When I use a word’, Humpty Dumpty said, in a rather scornful tone, ‘it means just what I choose it to mean, neither more nor less’. ‘The question is’, said Alice, ‘whether you can make words mean so many different things’.” One might be forgiven for thinking Lewis Carol was referring to the GST Act when he wrote these words, precisely because the Chameleon-like property of the word “supply” allows the executive to “tack” onto the question “supplies of what?” any number of “things” it seeks to tax.

258

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In short, treating a verb like “supply” as a single subject of taxation in and of itself would give a green light for the federal executive to engage in the practice of “tacking”, not by flagrantly bundling several pieces of tax legislation into a single tax bill, but via clever drafting devices which allow the executive to subsume all existing direct and indirect taxes – however controversial those subjects may be – simply by purporting to tax broad, question-begging concepts like “supply”, “valuations”, or “value” (of some unspecified thing).258 Coupled with the s 53 gun, one would be hard pressed to see how the Senate could ever properly discharge its duty of protecting the people of the States from financial aggression on part of the Commonwealth (Propositions 1-2) when confronted with such linguistic legerdemain.

PART IV: CONCLUSION Traditionally, an s 55 inquiry starts by ascertaining what the main or substantial subject of a tax happens to be, and then proceeds to examine whether some foreign second subject happens to be introduced into the tax mix (Proposition 12). However, turning back to the political milieu in 1999 (Proposition 32), it becomes apparent the GST Act fails, indeed defies, this conventional s 55 inquiry. This is because unlike an income tax, which is a direct tax on income, or a fringe benefits tax, which is a direct tax on fringe benefits, the GST signified “not a new tax” but rather “a new tax system”259 involving an agglomeration of indirect taxes imposed across a range of heterogeneous and disparate subject matters. Specifically, the GST imposes an indirect tax on goods (it is, after all, a duty of excise); an indirect tax on services (or a services tax, as members of Parliament across the political spectrum clearly recognised, and the “S” part of the GST Act acknowledges it to be so);260 an indirect tax on State imposts (or a tax on a tax, as pointed out by a number of opposition members of Parliament); an indirect tax on real property transactions (which, as Senator Margetts pointed out, is a subject of taxation traditionally taxed at the State level); an indirect tax on financial supplies (which, funnily enough, appears to partly replicate the very tax base the States were forced to lose because they were required to repeal their financial institutions duty, debit tax and others duties on mortgages, bonds and debentures); and an indirect tax on the creation, grant, assignment, transfer or surrender of any right and an indirect tax on any entry into, or release from, any contractual obligation (both of which has nothing to do with final private consumption). Thus, once we go beyond the title the executive government affixed to the GST and instead examine the actual substance and effect of the GST Act on the various circumstances or indicia of life (Propositions 7-9), it becomes clear that the effect of the GST is to impose taxes on no less than five other subjects of taxation, above and beyond either goods or services. However, the conglomerate approach toward “supplies” – pushed by the executive government back in 1999 – clearly disabled the Senate from dealing individually with each of these distinct “subjects” of taxation found within the GST Act. Therefore, the passage of the GST represented a classic textbook example of the executive government achieving in substance what it could not achieve in mere form, namely, “the tacking together of proposals relating to taxation of different kinds 258

If a “tax on supplies” is a single subject then quite frankly why cannot a “tax on stuff” be a tax on single subject of taxation? The executive can “tack” together every s 55 case in existence into a single bill simply by introducing a “tax on stuff” and the taxing of “any form of stuff whatsoever”. The legislation would then define what stuff would be taxed; for example, stuff might include (1) the monetary worth of any wages, salary, profits or any other kind of income; (2) the value of any registered instrument for land or all other forms of property, (3) the price of any financial transaction; (4) or the value of any land at the point of sale. Here, one is driven back to asking “what stuff exactly?” just like asking “a supply of what, exactly?” when examining the GST. It appears that such question-begging exercises might very well be constitutional in countries with unicameral legislatures or virtually non-existent Upper Houses, but they surely cannot be constitutional in a country whose organic law is specifically designed to protect the States from financial aggression on behalf of the Commonwealth. 259

Compare Treasury, Tax Reform: Not a New Tax, a New Tax System (1998).

260

It seems to me “services” (defined in ordinary parlance as any form of helpful activity) is clearly broad enough to include the provision of advice or information. The information and technology (IT) sector is, by definition, services based and the services provided by a barrister usually encompass the very act of providing any relevant legal advice or information. That is to say, the helpful activity provided in the IT and legal sector is the actual provision of advice or information itself.

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in one measure – more than one such proposal, and, perhaps, a number of them”.261 In substance, the GST has tacked together a number of different “kinds” of indirect taxes (including duties of excise, services tax, a tax on a tax, real property transaction taxes, etc) into an omnibus “supertax” imposed on many disparate subjects of taxation.262 Accordingly, the possibility that the Independents, Greens, ALP, and some Democrats could have formed a bloc to vote down or at least water down what was in substance a newly proposed “services tax” in order to prevent it from adversely affecting the Queensland, Tasmanian and Western Australian tourism sectors, or the controversial “tax on a tax” insofar as it taxed fire levies and other local charges, was effectively neutralised by the executive government of the day. Indeed, these two examples alone highlight just how much the Senate would have benefited from a discrete “unpackaging” of these indirect “taxes” according to “subject” matter and just how differently the debate might have been framed had the request by the 29 Senators to split the GST Act into different bills been acceded to. But it was not to be. The “federalism fault lines” which ran through the various parts of the GST Act could not be addressed by voting down the taxes which might be regarded as an outrage to the interests of the States represented in the Senate (Proposition 2). Instead, these taxes were tacked together with an anodyne indirect tax on real property transactions, intangible property and contractual obligations, meaning the States represented by the Democrats, who themselves raised a number s 55 concerns, were forced either (1) to reject the whole GST Act and thereby be accused of crippling some supposed “mandate” of the executive government; or (2) to shut up about their s 55 concerns, and accept the entire agglomeration with some exemption sweeteners for some subjects of taxation. The Democrats, of course, chose the latter (admittedly politically less confrontational) course of action. Therefore, given the GST is in violent conflict with the manifest tenor of s 55 of the Constitution (Proposition 22), it would appear that the High Court has a clear, some might say regrettable, duty to perform – namely, to invalidate the entire omnibus GST Act (Proposition 6). Yet this should not be something that should be feared by the High Court, which after all represents “the standing security for the maintenance of the rights of the Senate”.263 Indeed, given recent talk of raising the GST rate, or expanding the GST tax base, thereby raising the spectre of even further acts of financial aggression of the part of the Commonwealth, the constitutional argument for splitting up the GST Act appears just as strong, if not stronger, today than it was back in 1999. In particular, requiring the GST be split up into several bills might (1) allow the representatives of smaller States to form political alliances and coalitions with those of larger States to vote down each separate bill proposing a regressive increase in a services tax or a tax on a tax; or (2) it might prompt the Senate to vote down any bill unless the government sets a specified tax rate for different subjects of taxation, with higher rates on some subjects (like real property) but lower rates on others (like services);264 or (3) it might allow the 261

Buchanan v Commonwealth (1913) 16 CLR 315 at 323 (Barton J).

262

Commonwealth, Parliamentary Debates, Senate, 16 July 2014, p 5179 (James McGarth): “To cover the states for the loss of income from payroll tax, the GST should be broadened to cover everything and the GST should be increased to 15 per cent” (emphasis added). It is unclear whether “everything” here means “supply” will be extended to include “the supply of wages” as well. If so, just as GST on the “supply of goods” (one distinct subject of taxation) has subsumed various duties of excise, and GST on the “supply of services” (another distinct subject of taxation) has subsumed the New South Wales bed tax, and GST on “financial supplies” (another distinct subject of taxation) has subsumed the State financial institutions duty and debit taxes, the GST on the “supply of wages” (yet another subject of taxation) will probably subsume State payroll taxes as well. This again reveals the fact that the GST essentially involves “a grouping of taxes across a wide area”, that is, the “tacking” together tax proposals of different kinds, perhaps an unlimited number, into one measure: cf Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4264 (Andrew Murray); 4266, 4268 (Peter Cook).

263

FCT v Munro (1926) 38 CLR 153 at 184-186 (Isaacs J).

264

This means that raising, or altering, the GST rate on any one of these individual “subjects” of taxation will require separate consideration and approval from the Senate on each “subject” being taxed. For example, the Senate might consent to allowing more subjects of taxation, like real property, which is less likely to hurt the poor, to be taxed at a higher rate approaching 20%. By contrast, other subjects of taxation that disproportionately burden smaller States or the poor, like the services tax, might be set at 5%; or a tax on State imposts might be set at 7%. Thus, the Senate can vote down the indirect taxes (or the tax rates) it dislikes, and raise the indirect taxes on subjects it does like. The very fact varying tax rates can be set for these different subject matters draws an irresistible inference that these subjects raise necessarily separate and distinct federalism concerns requiring separate consideration by the two Houses of Parliament.

260

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Senate to assent to a tax increase on some subjects of taxation like the indirect tax on real property transactions or financial transactions, whilst allowing it to refuse (that is, vote down) any regressive increase in the tax on services or the tax on a tax – at least until its specific exemptions for tourism, or various State imposts, are explicitly acceded to by the executive government of the day. Thus, if the GST Act were to be split up into separate imposition Acts, any cross-bencher from Tasmania, or from any other State or Territory, would not be bullied into the compulsive acquiescence to one tax by the moral necessity of passing another distinct tax. Rather, they will be free to say to the executive government: “I will vote for a 15% real property transactions tax and a financial supplies tax; I have no problem with indirect taxes on these subjects. But, at present, I will never support any proposed increase to the services tax, given there currently are no exemptions for the tourism sector, a major employer in my State of Tasmania. Worse still, the GST tax base is now being expanded to include charitable and disability services, discriminating against poorer constituents in my State which has lower per capita income compared to other States. Therefore, I will vigorously oppose any increase to the indirect tax on services”.

Similarly, any Senator from Victoria is now free to say: “Constituents in my State must battle the natural environment. But they should not have to battle a federal government that inflicts on them the indignity of a tax on the fire services levy. Accordingly, I vigorously oppose any increase to the tax on a tax, given currently there is no express statutory exemption on fire levies, and other State imposts I have identified”.

But at present the Senate does not have this bargaining power or indulgence in the event the GST tax base were to be expanded, or the hard-won compromises of 1999 were wound back and an even larger kitchen sink were to be again thrown at the Senate by the House of Representatives. Yet again the s 53 gun would be used to put the Senate over the barrel, thereby forcing the Senate to either to accept or reject the entire agglomeration put before it (Propositions 1-2). Of course, the Commonwealth might very well argue that the fiscal chaos which might result from an adverse High Court judgment should trump these glaring federalism concerns with the GST. But this ignores the fact the entire scheme can be easily redrafted by the Commonwealth in order to comply with the s 55 mandate,265 or passed by the States themselves, at least insofar as the GST is not a customs duty or duty of excise, and therefore, is not in conflict with s 90 of the Constitution. The Commonwealth and States would be put on notice from the outset of any litigation, meaning a wide range of separate GST Imposition Acts could be passed well ahead of a contested High Court hearing so as to reduce the effectual scope of a finding of invalidity on the GST (General) Imposition Act as a residual Imposition Act.266 Such legislation could be made with retrospective effect, allowing a credit for any GST paid on the taxed items under any superseded or concurrent GST Imposition Act. Therefore, there is nothing to stop the Commonwealth shoring up its position in advance of an adverse decision. Furthermore, the High Court could announce in advance when it will release its decision in order to allow Parliament to be in session in the event new legislation is required to be passed. In turn, the Commonwealth could immediately prevent a wave of claims for refunds by preparing a 100% refunds tax similar to that which it imposed on refunds claimed from State Treasuries after the High 265

If consequences are a legitimate judicial factor for consideration, then one may as well argue that invalidating the GST in its entirety might actually have a number of positive consequences. It might, for example, prompt the Commonwealth to replace the GST with a more efficient consumption tax by introducing a cashflow tax. See the Henry Review, AFTS: Report to the Treasurer (Vol 1) (2009) pp 279-284. A direct tax on cashflows is, of course, a tax on one subject of taxation only, namely, cashflows, thus requiring a single tax bill in order to be implemented (no separate Excise or Customs Imposition Act would be required either).

266

Because the Excise and Customs Acts already probably “cover the field” in respect to goods, the GST Act would only need short imposition Acts which “funnel out” the remaining indirect taxes inside the GST into following subjects of taxation: Goods and Services (Services Tax) Act; Goods and Services (State Taxes Tax) Act; Goods and Services (Real Property Tax) Act; Goods and Services (Rights Assignments Tax) Act; Goods and Services (Financial Transactions Tax) Act; Goods and Services (Contractual Relations Tax) Act; Goods and Services (Rights Transactions Tax) Act; and Goods and Services Tax (Residual and Exemptions) Act. For reasons already given in footnote 260 above, “services” could, under a single imposition Act, be defined to include the provision of any advice and information.

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261

Spadijer

Court invalidated the State tobacco and petrol franchise taxes. For the High Court, invalidating an important item of fiscal legislation is a case of “been there, done that”. In any event, s 55 would forever be rendered a dead letter if such consequences were a primary, or even overriding, factor in considering whether or not to declare a law unconstitutional under s 55. This is because extreme fiscal and political consequences are precisely what one would expect from invalidating an omnibus tax bill like the GST. Indeed, the more extreme the “tacking”, and therefore the broader the range of subjects which underpin the underlying tax base of any unconstitutional tax system, the more extreme one would actually expect the fiscal or political consequences of invalidating any general or composite tax statute to be, especially if the statute goes unchallenged for some time. Thus, if consequences are a legitimate judicial consideration, the High Court will simply be forced to shrink from discharging its judicial duty every time there might be adverse fiscal consequences arising from any extreme instance of “tacking” together many disparate subjects of taxation. Fortunately, the traditional rule has been “let justice be done, though the heavens fall in” (fiat justitia, ruat caelum)267 and the consequences of invalidity should not properly be a matter for judicial consideration if a court is convinced that any piece of legislation, no matter how allegedly important or sacred, has been found to circumvent any express mandate imposed by the Constitution (Propositions 26, 35). This is especially the case here, given the framers of the Constitution considered the matter and felt that breaches of s 55 should have consequences either in order to ensure adherence to the rule of law, to protect the liberty of the individual, or to safeguard the rights of smaller States (Propositions 3-4, 26). Political inconvenience is simply not a sufficient reason to continue to allow the Constitution to be held hostage to the demands of tax collectors.

267

R v Wilkes (1770) 4 Burr 2527 at 2562 (Lord Mansfield). His Lordship was giving reasons for finding invalid a declaration of outlawry of John Wilkes, the publisher and politician, despite the significant animus both his Lordship and Mr Wilkes had for each other.

262

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