[Home] [Help] [Databases] [WorldLII] [Feedback]
	Murdoch University Electronic Journal of Law

---------------MdU Library Gopher Header Information---------
Title : Review of Western Australian State Taxes
: - Business Franchise Licence Fees
Author : Tax Policy Elective 1993
Organisation : School of Law, Murdoch University
Language : English
Keywords : TAXATION, WESTERN AUSTRALIA, EQUITY,
: EFFICIENCY, SIMPLICITY, REFORM
Abstract : See abstract to Preface and Introduction
Contact Name : The Editors, E Law
Contact Address: Murdoch University Law School, PO Box 1014,
: Canning Vale, Western Australia, 6155
Contact Phone : +61 09 360 2976
Contact Email : elaw-editors@csuvax1.murdoch.edu.au
Last Verified :
Last Updated :
Creation Date :
File Size : 61,498K
File Type : Document
File Format : ASCII
Publication Status: Final
COPYRIGHT POLICY:
Material appearing in E Law is accepted on the basis that the
material is the original, uncopied work of the author or
authors. Authors agree to indemnify E Law for all damages,
fines and costs associated with a finding of copyright
infringement by the author or by E Law in disseminating the
author's material. In almost all cases material appearing in E
Law will attract copyright protection under the Australian
_Copyright Act 1968_ and the laws of countries which are member
states of the _Berne Convention_, _Universal Copyright
Convention_ or have bi-lateral copyright agreements with
Australia. Ownership of such copyright will vest by operation
of law in the authors and/or E Law. E Law and its authors
grant a license to those accessing E Law to call up copyright
materials onto their screens and to print out a single copy for
their own personal non-commercial use subject to proper
attribution of E Law and/or the authors.
ISSN: 1321-8247
URL: gopher://infolib.murdoch.edu.au:70/00/.ftp/subj/law/jnl/
elaw/comment/watax/chap5.txt

---------------------------------------------------------------

1 INTRODUCTION

Business franchise licence fees are levied on wholesalers
and retailers of tobacco, liquor and petroleum. All
wholesalers and retailers are required to be licensed
before they are permitted to sell these products.

Any discussion of business franchise licence fees must
address the issue of whether they are unconstitutional by
virtue of section 90 of the Constitution. The High
Court's definition of the term "excise" has become broader
as time has passed. This process has eroded the States'
ability to levy taxes on commodities and has impacted on
the effectiveness of their taxation policies.

There is some indication that the High Court may be about
to revert to its original, narrow definition of "excise".
If so, it may be that this area of taxation will assume a
new prominence in revenue raising by the States.

This chapter will begin by examining the constitutional
issues arising from the levying of licence fees. This
analysis will focus on the characteristics of an excise
and, the means that the States have adopted in order to
impose licence fees. The methods that the States have
used in order to remain within Constitutional bounds will
be evaluated with reference to the three criteria of
taxation policy: equity, efficiency and simplicity.

This will be followed by a study of the provisions of each
of the relevant Acts together with any recommendations for
improvement. Included within this discussion will be any
relevant policy issues which arise from the imposition of
such taxes. An economic analysis of the taxes and a
summary of recommendations will conclude the chapter.


2 SECTION 90

On the imposition of uniform duties the power of the
Parliament to impose duties of customs and of excise,
and to grant bounties on the production or export of
goods, shall become exclusive. ...

Section 90 has undergone some dramatic changes in the
process of being interpreted by the High Court. This
outline seeks to highlight some of the more significant
characteristics that the High Court have held to be
indicative of an excise. To do this, the salient points
of each decision will be enunciated and examined.

In order to properly examine the effect those decisions
have had on this tax policy, the three criteria of equity,
efficiency and simplicity will be utilised to evaluate the
kinds of tax design permitted under those decision. Not
all of the effects of the different criteria will be
changed under new formulations of the meaning of section
90. Their impact on equity, for example, has been
limited. Accordingly, the initial analysis will
concentrate on the criteria of simplicity to show how the
changes wrought by the High Court have varied the
permissible policy base.

2.1 The Initial Definition

The original interpretation was formulated in _Peterswald v
Bartley_.(1) In this case the High Court handed down a
narrow interpretation of the term `duty of excise'. This
narrow definition appeared to allow the States a
reasonably wide power to tax commodities.

The requirements of the _Peterswald_(2) decision were as
follows:

For a tax to be found as a duty of excise it must have the
following characteristics:

1. a tax or impost;
2. on goods;
3. referable to quantity or value;
4. in relation to production or manufacture;
and
5. and indirect not a personal tax.

An excise can be seen to be an impost levied at some point
during the process of manufacture of goods and referable
to their quantity or value. On this basis, it can be seen
that a tax on commodities that is permissible under this
definition of section 90 is one that is either levied at
the point of subsequent distribution or is not calculated
with reference to the level of production.

The equity analysis of this formulation is as follows.
The tax base is narrow as it applies to a limited group of
persons, namely those who consume the specific
commodities. Unless the tax is imposed on goods that are
required by a wide section of society and there are no
near substitutes that are not subject to the tax,
horizontal equity will be offended.

Vertical equity does not appear to be satisfied at all by
an impost of this kind. There is no real way of ensuring
that those who are more able to pay bear more of the tax
burden. In general the less well off will pay at least
the same proportionally as the more well off.

The higher potential for consumption which comes with
increased disposable income means that those who are
better off may pay more in absolute terms, but they do not
pay proportionally more. Indeed, their higher rates of
savings may lead them to pay proportionally less. It may
be that vertical equity can be satisfied by imposing
higher rates upon luxury commodities than upon necessities
or lower quality goods.

The efficiency arguments in regard to this formulation are
quite straightforward. Investment choices will,
naturally, be affected by the level of the tax imposed on
the commodity. The effect that this will have on the
consumption of that commodity depends upon the marginal
analysis and price elasticity of demand of that commodity.
This aspect will be examined in detail with respect to
particular goods and will not be attempted in detail in
this part of the study.

It is trite to say that imposing the cost of levying a tax
on commodities at the point of distribution will have an
impact upon the participation rate of the distributors.
Only if the cost of the impost can be fully passed on to
consumers without affecting demand, will it fail to impact
on such participation. If the demand curve for the
commodity is elastic and the cost of the tax has to be
borne by the distributor, the profits to the distributor
will be decreased and this may discourage investment in
this sector of the economy. The individual effect of this
cost on individual commodities will be examined later in
the essay.

The most important criteria for this formulation is that
of simplicity. By permitting the tax to be imposed at the
point of distribution by wholesalers, collection costs are
kept to a minimum.

There are a small number of collection points and, as the
levy can be calculated on the amount of the good delivered
from the wholesaler, records would be easy to check for
compliance. An adjunct of imposing the tax at this point
is that the levy could be based on either value or
quantity depending upon the type of good, allowing for a
relatively straightforward calculation of the tax.

Additionally, as the tax would be factored into prices
before the commodities reached consumers it would be
fairly transparent to them and so its acceptance level
would be correspondingly high.

2.2 The Second Phase

_Parton v Milk Board_(3) found a very differently composed
group of justices. Hanks in a 1987 essay, stated that the
High Court seemed to

view the purpose of section 90 to concentrate in
the hands of the Commonwealth the power to
implement not only tariff policies but also such
economic and social policies as stimulation or
dampening of consumption, deflation of the
economy and redistribution of income.(4)

In this case Dixon defined an excise as a tax upon a
commodity at any point in the course of distribution
before it reaches the consumer.

This change to the way an excise was defined effects the
permissible tax base. Only in regard to its capacity to
meet the criteria of simplicity. In spite of Hanks' view,
there was no real change to the efficiency position. The
High Court did not lay down any specific guidelines as to
use of the definition. The States sought to maintain
their tax base and imposed the same taxes but used
different methods to calculate the tax to avoid offending
section 90.

The real effect of these decisions is that taxing goods
upon their value at some stage in their distribution is no
longer permitted. Such a tax would need to be imposed at
the point of consumption which would vastly increase the
number of collection points and the difficulty of
collection.

2.3 The Current Position

_Dennis Hotels Pty Ltd v Victoria_(5) was the next significant
step in the evolution of the definition of section 90. In
this case the High Court allowed the States to claw back
some of their powers to tax goods. A licence fee based on
sales of goods in a period prior to that for which the
licence ran was held not to be an excise.

Simplicity implications for this tax are reasonably
similar to the second case, but with regard to the
simplicity criteria, the taxes made permissible by the
decision in _Dennis Hotels_ cannot to calculated in a way
which allows for rapid changes to the turnover of the
business or sale of the business without offending section
90. As a result the calculations tend to be complex and
unwieldy.

Furthermore, as most licence fees of this kind are
effectively collected from retailers they involve many
more collection points than would a tax imposed at the
point of production or wholesale sale and require complex
calculations to ensure that all the tax is collected.

The whole question of licence fees calculated on past
sales has recently been re-argued. _Capital Duplicators
Pty Ltd v Australian Capital Territory_(6) may be the case
that changes the constitutional position of State taxation
of commodities. The High Court may decide to move back to
the _Peterswald_ test to restore simplicity to the
definition of excises. Such a move would greater free up
the State tax base to the point of allowing a broad-based
goods and services tax.

On the other hand, a retreat from _Dennis Hotels_ could
bring with it the downfall of the existing State licence
fees.


3 TOBACCO LICENCE FEES

In 1992-93, the total revenue raised from tobacco licence
fees was $129.1m. Of that revenue, it is estimated that
around 12 per cent was generated by sales to other States
because of the lower tax rate in Western Australia.
However, the Government recently announced an increase in
tobacco licence fees to 100%, which may discourage
purchases from other States when it becomes effective.

The _Business Franchise (Tobacco) Act 1975 (WA)_ deals with
tobacco taxes. This Act provides for the payment of fees
by wholesalers and retailers of tobacco.

Section 6 of the Act provides for the licensing of
tobacconists. Section 6(1) prohibits a person from
carrying on tobacco wholesaling without a wholesale
tobacco merchant's licence or a group tobacco licence.
Section 6(2) prohibits the purchase of tobacco in the
course of tobacco retailing without a retail tobacconist's
licence or a group tobacco licence. The penalty for
breaching either subsection is $40 000. Subsection (3)
exempts a person from liability under subsection (2) where
the purchase is made from the holder of a licence or the
tobacco was previously purchased by another person from
the holder of a licence. Tobacco taxes are thus levied
only once before sale. That is, either a wholesaler or
the retailer must pay the licence fee.

The fees to be paid for such licences are Stated in
section 10 of _the Business Franchise (Tobacco) Act 1975_.
Amendments have been made since the development of the Act
to increase the amount of licence fees payable.(7) For any
licence that is in force for any period after 28 February
1990, a fee of $20 is payable for each wholesaler, group
member or retailer depending on the type of tobacco
licence.(8) In addition to this, an effective amount equal
to 100% of the value of the tobacco sold by the applicant
during the relevant period is payable. This does not
include the value of tobacco purchased from the holder of
a tobacco licence.

An exemption is found in section 10(4). This subsection
excludes the value of any tobacco sold for delivery and
consumption outside the State in the determination of the
fees payable. This is to allow for taxes imposed by other
States.

In addition to the penalties that apply for selling
tobacco without a licence9 there are provisions for the
recovery of fees from unlicensed persons. Section 12A of
the _Business Franchise (Tobacco) Act 1975_ States that
where a person was required to hold a licence but did not
do so, that person is liable to pay to the Commissioner a
fee equal to twice the fee that would have been payable if
she/he had applied for and been issued a licence in
accordance with the Act.

The fees for tobacco licences are calculated on the basis
of prior sales as specified in section 2(1) and the first
Schedule to the Act. This currently allows the licence
fee to escape characterisation as an excise contrary to
section 90 of the Constitution.

The main aim of the licence fee is to raise revenue, but
there is the additional aim of reducing the incidence of
tobacco smoking. This is attempted by increasing the cost
of tobacco and providing a proportion of the extra funds
for health programmes.(10) However, the recent increases in
the levy have been joined by a significant real reduction
in the amount of funding that is to go to the Health
Promotion Foundation, Healthways. In July 1993 the
Minister for Finance announced
that the turnover component of the licence fee was being
increased from fifty percent to one hundred percent. This
amendment to the licence fee is contained in the Business
Franchise (Tobacco) Amendment Bill. A complementary bill
has been introduced, the Tobacco Control Amendment Bill,
which limits the appropriation from the consolidated fund
to the Health Promotion Foundation to seven per cent of
tobacco tax receipts for that year, or $12.9m, whichever
is the lesser. The reduction in the rate from 10 per cent
denies the Health Promotion Foundation an additional
$5.9m.

This taxation burden is placed on all members of the
community who smoke. Given that tobacco costs Australia
$6.8 billion a year in direct and indirect health costs
and lost production, it is argued that smokers should be
responsible for this cost. However, it is doubtful how
much of the revenue raised is used to meet the cost of
smoking to the community. Further, it has been suggested
that the incidence of the tax is regressive, with smokers
occurring more frequently in lower income groups.

Tobacco taxes are a fruitful revenue raising activity for
the government because of the inelastic demand for
tobacco. Increasing the rate of tobacco tax can thus be
seen to exploit the addiction of many smokers.

One of the rationales for increasing the cost of tobacco
is that it may deter children and adolescents from taking
up smoking. _We recommend that tobacco taxes be increased
only to the extent that the extra revenue contributes to
existing and additional Health programmes relating to
smoking. The recent increase is fundamentally a revenue
raising exercise and can be said not to have been
introduced to affect the consumption patterns of (young)
people in the State._


4 PETROLEUM LICENCE FEES

Business franchise licence fees are imposed by Part IIIA
of the _Transport Co-ordination Act 1966_. This part is
titled Business Franchise (Petroleum Products) Licensing.
The provisions for licence fees for petroleum operate
similarly to those for tobacco. One difference is that
the fee for petrol is determined according to the volume
of the petrol as opposed to tobacco and alcohol where the
fee is determined according the value of the alcohol or
tobacco. This can impact on the efficiency and simplicity
of the tax. Further, it does not take inflation into
account in the determination of the fees. One rationale
for the determination according to volume is that the
price of petrol is constantly fluctuating. However, if
the licence fees for petrol were determined according to
value and not volume this could help stabilise the petrol
market. _We recommend that the Petrol licence fee be
brought into line with the determination for tobacco and
alcohol._

Section 47K of the Act requires a licence for the carrying
on of wholesale petroleum products. The definition
section (S47G) excludes sales of off-road diesel. This
exemption favours primary producers by providing tax free
fuel. This exemption impacts on the simplicity of the
tax. It can also be argued that the exemption is
horizontally inequitable. Regulation 35I provides that a
person requiring diesel for off-road use may apply to the
Commissioner for a certificate allowing the exemption.
Problems thus arise with regard to the policing of these
certificates and the possible abuses that may occur as a
result of allowing the exemption. _We recommend that this
exemption be removed in the interests of simplicity and
that the increased revenue be used to reduce the licence
fee on diesel fuel, by a similar amount. His ensures
revenue neutrality and makes the proposal more politically
palatable._

The definition section also excludes aviation fuel and
liquefied petroleum gas. These exemptions are
considerably costly and reduce the efficiency of the tax.
However, to remove the exemption for aviation fuel could
decrease the number of international flights landing in
WA. _We recommend that the exemptions for LPG be removed
and that the exemption for aviation fuel remain._


5 LIQUOR LICENCE FEES

Business franchise licence fees on the sale of liquor are
imposed by the _Liquor Licensing Act 1988_ (WA). Although
this Act provides for a variety of types of licence, the
present discussion will focus on retail, wholesalersU and
producersU licences, which are the only licences for which
fees may be calculated on the value of past liquor sales.

Licence fees are collected by the Director of Liquor
Licensing, and Rmay be fixed at such amount as the
Director thinks proper and reasonable in the
circumstancesS under s.128. However this discretion would
normally only be exercised in determining the fee for the
first licence period of a new licence under s.129.
Thereafter, the fee is calculated by reference to the
wholesale price of all liquor sold by the licensee during
the year preceding the licence period (s.127(2)). The
current licence rates are 11% of the wholesale price of
full strength liquor, and 7% of the wholesale price of low
alcohol liquor (s.132(4), (5)).

To avoid double taxation, the licence fee is only imposed
once in the chain of production of liquor (s.134(1)(e) and
(g)). The intention of the Act is that it should be paid
at the retail level. Thus, s.132(4) provides that the
licence fee payable by a producer or wholesaler is
calculated as a percentage of its sales revenue from
liquor; but s.134(1)(g) provides that in determining this
sales revenue, Ran amount paid or payable to the holder of
a producerUs licence or a wholesalerUs licence for liquor
sold to a liquor merchant shall not be taken into
accountS. Since the term Rliquor merchantS is defined to
include any authorised seller of liquor in Australia, the
effect of s.134(1)(g) is that producers and wholesalers do
not pay any fee on liquor sold by them for resale (or, by
virtue of s.134(1)(f), sold overseas).

Unfortunately, however, s.134(1)(g) does not stop there.
Interpreted literally, it also exempts retailers from
paying licence fees on most of the liquor they sell. By
s.132(5), the licence fee payable by the holder of a
retail licence is calculated as a percentage of the gross
amount paid by it for liquor. However s.134(1)(g)
provides that amounts paid to the holder of a producerUs
or wholesalerUs licence are not taken into account in
determining the amount paid by a licensee for liquor.
Accordingly, retailers are exempted from paying a fee on
any liquor bought by them from Western Australian
producers or wholesalers.(11)

Despite the clear wording of s.134(1)(g) to this effect,
it has been administered as if it only applied to the
calculation of licence fees payable by producers and
wholesalers. If this is the effect which the provision
was intended to have, it ought to be amended. _We
recommend that s.134(1)(g) be amended by preceding it with
the words Rfor the purpose of assessing a licence fee for
a producerUs licence or a wholesalerUs licence._

The _Liquor Licensing Act_ contains numerous provisions
designed to combat evasion of licence fees. Most simply,
s.146(4) and (5) require licensees to complete returns
which enable the reported sales between producers,
wholesalers and retailers to be cross-checked against one
another. The Director is also empowered to investigate
the quantum of fees payable by licensees (ss.148, 150) and
suspected attempts to evade payment (s.137), as well as to
determine licence fees which cannot otherwise be correctly
assessed (ss.135, 136) and to reassess them at almost any
time (s.138). The Act imposes various penalties for non-
compliance with the provisions relating to licence fees
(ss.141, 142, 147, 157), and permits orders for the
payment of money to be made not only against licensees,
but against the directors of corporate licensees, related
bodies corporate, and their directors (s.143).

One other anti-evasion provision of the Liquor Licensing
Act is notable for its doubtful constitutionality.
Subsection 133(2) exists to prevent a licensee from
expanding its operations, greatly increasing its sales,
and then surrendering or cancelling its licence before
becoming liable to pay the increased licence fee. The
subsection provides that in such a case a licensee may be
required to pay the licence fee which would have been
payable in the licence period after the expansion of
operations, instead of the fee assessed in respect of the
current licence period. This provision is almost
certainly unconstitutional, because it effectively causes
the licence fee to be calculated by reference to the sales
of the current rather than a prior licence period, thus
falling outside the _Dennis Hotels_ exception to s.90 of the
Constitution. We recommend that this fee be replaced by
one determined at the discretion of the Director of Liquor
Licensing, as for initial licence fees under s.129.

It may be uncontroversial to venture that the main purpose
of the liquor licensing fee is to raise revenue, and this
is discussed further in the conclusion to this chapter.
However a subsidiary purpose of the fee is to control the
social costs of excessive alcohol consumption, including
road accidents, health problems and crime.(12) This is
confirmed by s.5 of the Liquor Licensing Act, which
provides that one of the ActUs objects is Rto provide
adequate controls over, and over the persons directly or
indirectly involved in, the sale, disposal and consumption
of liquorS.

An inherent shortcoming of the liquor licence fee in
combating such social costs lies in the inequity of
requiring all drinkers to pay for the problems created by
irresponsible drinkers and alcoholics. However, the
comparative simplicity of the liquor licence fee is a
substantial countervailing benefit. Even if the social
costs imposed by individual drinkers could be cheaply
estimated, determining fees on that basis would require as
many collection points as drinkers. It should also be
noted that licence fees comprise only one of the measures
used to control the social costs of drinking; others, such
as the 0.05% blood alcohol limit for motorists, do not
have an inequitable incidence.

A further apparent shortcoming of the fee is that it is
imposed on the wholesale price of liquor, whereas an
economically optimal tax to regulate liquor consumption
would be imposed on its alcohol content.(13) However the
differential rate of tax for low alcohol liquor (s.132)
does go some way towards this economic ideal. In
addition, the difference in the market prices of beer,
wine and spirits suggests a broad relationship between the
price of liquor and its alcohol content, so that the
former may be used as a useful proxy for the latter.


6 BUSINESS FRANCHISE LICENCE FEES ASSESSED

Before offering a final assessment of the three business
franchise licence fees, it is necessary to investigate
exactly where their economic incidence lies. The answer
is much the same for all three taxes, due to the fact that
petroleum,(14) liquor (15) and tobacco(16) all have a low price
elasticity of demand. This means that the level of
consumption of these goods is relatively insensitive to
changes in their prices. This in turn means that most of
the tax, although paid by producers, will be passed on to
consumers.

To explain why, consider the example of
a 100% tax on cigarettes. Without the tax, the $2.70
market price of cigarettes is determined by the
intersection of the demand curve (D) and the supply curve
(S). With a 100% tax, the supply curve is pushed upwards
(S + tax), causing the price to increase to $5.00, and the
quantity demanded to decrease correspondingly. Note that
due to the steepness of the demand curve (which represents
its inelasticity), approximately 85% of the tax has been
borne by consumers, and only 15% by producers in the form
of reduced sales.

Whether this is a desirable outcome or not cannot be
answered in the abstract, because it impacts differently
on two of the main criteria for the assessment of a tax:
equity and efficiency. Taking equity first, any narrow-
based sales tax (which business franchise licence fees
effectively are) will be inequitable; both horizontally,
since only users of the taxed goods pay the tax, and
vertically, because the rate of tax will tend to be
regressive with respect to income. This inequity is
compounded where the goods have an inelastic demand curve,
because this throws more of the tax burden on to
consumers.

Inelasticity of demand has the opposite effect on the
efficiency of a business franchise licence fee. Such fees
are by definition inefficient to some extent, by
distorting patterns of consumption away from the goods
that fall under the tax. However, this distortion (known
to economists as deadweight loss) is lessened where the
goods taxed have an inelastic demand curve. This is
because a high tax can be levied on such goods without
causing much disruption to consumption patterns. In
simple terms, consumers will simply wear the tax burden,
rather than cutting down on their consumption of the taxed
good, at least in the short term.

More importantly, however, even the distortion that does
occur may not reduce the efficiency of the level of the
good consumed, but actually increase it. This is because
the prices of petroleum, liquor and tobacco which would be
set by the free market are inefficiently low, due to the
negative externalities or external costs that the use of
all three goods levies on the community. So-called
corrective taxes on these goods can therefore turn these
external costs back on those who cause them, thus reducing
consumption of the goods to a more efficient level.

The most obvious external costs of the use of liquor and
tobacco are the health and safety problems caused by
users, both to themselves and to others. Another cost is
the intangible injury done to society by the breach of
community attitudes against the excessive use of legal
drugs.(17) Similarly, the most obvious external costs of
petroleum use are pollution and traffic congestion.
Another cost is the infrastructure provided by the
government for most petroleum users. While this is not
what is usually thought of as an external cost, the fact
that the consumption of petroleum can be used as an
accurate proxy for road use allows it to be treated in
much the same way.

In summary then, it has been found that business franchise
licence fees are by definition inequitable, and that this
is compounded for goods with inelastic demand curves such
as petroleum, liquor and tobacco. The fees are less
likely to be inefficient however, both because the
inelasticity of demand of the taxed goods works against
the distortion of consumption patterns, and because the
distortion that does occur is likely only to cause
consumers to internalise some of the external costs which
their use of the taxed goods causes.

It follows from this that the suitability of business
franchise licence fees for the taxation of petroleum,
liquor and tobacco depends on the purposes (apart from the
raising of revenue) which the taxes are intended to serve.
If they are intended to reduce the consumption of the
taxed goods, the inelasticity of demand for the goods is a
substantial impediment to that function.(18) The government
would do better to rely on methods other than taxation,
such as its Quit and Drive Safe advertising campaigns,
which do not have such an inequitable incidence. If, on
the other hand, the business franchise licence fees are
intended simply to force users of the taxed goods to pay
for the costs they create- a user pays philosophy- then
that function is well served by the taxes.

7 SUMMARY OF RECOMMENDATIONS

We recommend that tobacco taxes be increased only to the
extent that the extra revenue contributes to existing and
additional Health programmes relating to smoking. The
recent increase is fundamentally a revenue raising
exercise and can be said not to have been introduced to
affect the consumption patterns of (young) people in the
State.

We recommend that the petroleum licence fee be calculated
on the value of sales, as with tobacco and alcohol.

We recommend that this exemption be removed in the
interests of simplicity and that the increased revenue be
used to reduce the licence fee on diesel fuel, by a
similar amount. This ensures revenue neutrality and makes
the proposal more politically palatable.

We recommend that the exemptions of LPG from the petroleum
licence fee be removed, and that the exemption for
aviation fuel remain.

We recommend that s.134(1)(g) of the Liquor Licensing Act
be amended by preceding it with the words Rfor the purpose
of assessing a licence fee for a producerUs licence or a
wholesalerUs licenceS.

We recommend that the fee imposed by s.133(2) of the
Liquor Licensing Act be replaced by one determined at the
discretion of the Director of Liquor Licensing, as for
initial licence fees under s.129.

Notes:

1 (1904) 1 CLR 497.
2 supra 1 at 509. Per Griffith CJ, O'Connor,
Barton JJ.
3 (1949) 80 CLR 229
4 Hanks, P. Constitutional issues of
Australian Taxation, in _Australian Taxation_,
Krever, R., Kewley, G. (eds) 1987, Longman,
Melbourne.
5 (1961) 104 CLR 229.
6 [1993] 8 Leg Rep 13 (argued 20-23 April 1993)
7 Until November 1989, the amount payable was $20
plus 35% of the value of tobacco sold.
8 That is, whether the licence is a wholesale
tobacco merchant's licence, a group tobacco licence
or a retail tobacconist's licence.
9 Section 6 States that the penalty for carrying
on tobacco wholesaling or retailing without a licence
is $40 000.
10 Section 26 of the _Tobacco Control Act 1990_ (WA)
details the funds of the Western Australian Health
Promotion Foundation. Subsection (2)(b) States that
ten percent (or such greater percentage as the
Minister may determine by notice published in the
Gazette) of the total amount of fees paid under the
_Business Franchise (Tobacco) Act 1975_ to the
Commissioner of State Taxation and the Consolidated
Revenue Fund shall be appropriated to the extent
necessary for the making of such payment.
11 Therefore the only liquor which is taken into
account in the determination of retail licence fees
is liquor which has been imported by the retailer
directly from interstate. Needless to say, this
infringes the freedom of interstate trade guaranteed
by s.92 of the Constitution.
12 In one New South Wales study, as many as 62% of
incidents investigated by police, including 73% of
assaults, were classed as alcohol-related: Ireland,
C. and Thommeny, J. RThe Crime Cocktail: Licensed
Premises, Alcohol and Street OffencesS in (1993) 12
_Drug and Alcohol Review_ 143.
13 Lloyd, P. RThe Economics of Regulation of
Alcohol Distribution and Consumption in VictoriaS in
(1985) _Australian Economic Review_ 16, 27.
14 Dahl, C. and Sterner, T. Analysing Gasoline
Demand Elasticities: A Survey in (1991) 13 _Energy
Economics_ 203. According to this survey of 97
studies worldwide, the average price elasticity of
demand for petroleum is -0.26 in the short run, and
-0.86 in the long run. By way of comparison, an
elasticity of -1 would signify that changes in price
cause demand to change proportionately in the
opposite direction.
15 Baltagi, B. and Goel, R. Quasi-Experimental
Price Elasticity of Liquor Demand in the
United States in (1990) 72 _American Journal of
Agricultural Economics_ 451. According to this
American survey of data from several decades, the
price elasticity of demand for liquor is
approximately -0.7. An equivalent Australian
estimate is -0.5 (Lloyd, P. Op. cit. 21).
16 Alchin, T. Tobacco Taxation in Australia
in (1992) 11 _Economic Papers_ 77. According to this
survey of a number of studies worldwide, a median
figure for the price elasticity of demand of tobacco
is -0.47 in the short run and -0.48 in the long run.
17 Some economists treat this kind of cost
separately, because it is borne by society as a whole
from the consumption of certain demerit goods.
18 Ironically, those whose consumption it is most
important to reduce- alcoholics and nicotine addicts-
are those who are least likely to do so. Although no
research has been done on the question, taxation
would be expected to have most effect on the
consumption of occasional smokers and drinkers.