AustLII Home | Databases | WorldLII | Search | Feedback

Sydney Law Review

Faculty of Law, University of Sydney
You are here:  AustLII >> Databases >> Sydney Law Review >> 1999 >> [1999] SydLawRw 24

Database Search | Name Search | Recent Articles | Noteup | LawCite | Help

Williams, John M --- "'Come in Spinner': Section 90 of the Constitution and the Future of State Government Finances" [1999] SydLawRw 24; (1999) 21(4) Sydney Law Review 627

‘Come in Spinner’: Section 90 of the Constitution and the Future of State Government Finances

JOHN M WILLIAMS[*]

‘Another quid to see him go. Get set on the side. All set, come in spinner’
TOM RONAN[1]

1. Introduction

The recent High Court decision in Ha v New South Wales[2] has effectively brought to an end a constitutional anomaly that had beset the interpretation of section 90 of the Constitution. The so-called ‘franchise fee cases’[3] were, at best, an aberration in what has been a general expansion in the operation of the scope of section 90. The ramifications of the decision in Ha have variously been described as creating an ‘administrative nightmare’ by the then Queensland Treasurer Joan Sheldon,[4] as a ‘Marxist approach to tax reform’5 or seized upon by the Federal government as a means of promoting a larger taxation reform agenda. However, as with many other aspects of constitutional interpretation, whether or not one favours the reduction in the State and Territory governments’ indirect taxation base is often a reflection of attitudes towards the federal system itself.

But what of the basis of this decision? And what are the implications for the reduction of the revenue base of the States and Territories? This article will argue that the meaning of ‘excise’ in section 90, the so-called ‘rock in a sea of uncertain principle’, is by no means as certain as the majority in Ha would have us believe.[6] Moreover, the demise of the franchise system as a means to raise capital for the States and Territories, it is argued, will inevitably place further pressure on these governments to increase their dependence on what is already a key revenue stream: gambling taxes. In essence, this article makes two possibly forlorn arguments for a narrow reading of the meaning of excise in section 90. The first is based on the historical understanding of the term as used by the framers of the Constitution. The second argument incorporates a legal realist account of the effects of depriving the States and Territories of this source of income. In particular this article highlights the increased reliance of the states and Territories on regressive taxation measures such as gambling to support their budgets.

2. Chained to the Wheel?

Section 90, and the general issue of fiscal federalism, has been the subject of much academic consideration. Perhaps the first analysis came in 1902 with Alfred Deakin’s prophetic statement about the future of the States in the new Federation. He said that:

The rights of self-government of the States have been fondly supposed to be safeguarded by the Constitution. It left them legally free, but financially bound to the chariot wheels of the central Government. Their need will be its opportunity. The less populous will first succumb; those smitten by drought or similar misfortunes will follow; and, finally, even the greatest and most prosperous will, however reluctantly, be brought to heel. Our Constitution may remain unaltered, but a vital change will have taken place in the relations between the States and the Commonwealth. The Commonwealth will have acquired a general control over the States, while every extension of political power will be made by its means and go to increase its relative superiority.[7]

On one reading of Deakin it is hard not to conclude that the High Court’s decision in Ha is little more than the continuation of the task of economic domination of the Commonwealth set in train in 1901. Yet, notwithstanding Deakin’s insight as to the current state of Australian fiscal federalism, it is difficult to envisage that even he would have predicted the degree of the dependency that States and Territories would arrive at. Moreover, whether or not his views represent the beliefs of the rest of the framers is a debatable point.

Before discussing certain aspects of the High Court and its treatment of section 90 of the Constitution I would like to deal briefly with the most recent section 90 case Ha and its companion case.[8] In the first case the plaintiffs operated duty free stores in suburban Sydney in 1994. The first plaintiffs sold by retail tobacco products and at the material times neither plaintiff held retail licences under the Business Franchise Licences (Tobacco) Act 1987 (NSW) (‘the Act’). The second plaintiff, it appears, held a wholesaler’s licence at the relevant time.

Each plaintiff was prohibited from selling tobacco[9] whether by wholesale[10] sales without a licence. Licences were issued upon application for periods not more than a month expiring on the 27th day of the month.[12] The amount of the licence was determined on the basis of a $10 flat fee together with a percentage of the value of the tobacco sold during the ‘relevant period’.[13] The ‘relevant period’ was defined to mean ‘the month commencing 2 months before the commencement of the month in which the licence expires’.[14]

The percentage rate had varied by amendment from time to time. However, between August 1989 and June 1995 the rate had increased from 30 per cent to 100 per cent of the value of the tobacco sold. An assessment was made against the plaintiffs in the first action to the value of over $2 million and over $20 million against the plaintiff in the second action.

The plaintiffs in both actions contended that the provisions of the Act that imposed liability to pay the amount claimed amounted to a duty of excise within the terms of section 90 of the Constitution and were thus invalid. The State of New South Wales, with the support of the other States and Territories, contended that the licence fees were not duties of excise within the meaning of section 90 on two grounds. Firstly, the Act did not prescribe production or manufacture of tobacco within Australia to be the discrimen of liability. Secondly, the licences were merely imposts to carry on the business of selling tobacco and were not a tax on the tobacco sold.

The High Court by majority (Brennan CJ, McHugh, Gummow and Kirby JJ; Dawson, Toohey and Gaudron JJ dissenting) held that the licence fees did amount to a duty of excise within the meaning of section 90 of the Constitution and thus were invalid.

The majority firmly rejected the submission that the licence fee did not amount to an excise in that it fell not on manufacture and production but on sales generally. In doing so they drew on the conclusions of Dixon J in Dennis Hotels Pty Ltd v Victoria[15] and Parton v Milk Board (Vic)[16] that the purpose of section 90 is not so limited. Rather, the term must be construed ‘as exhausting the categories of taxes on goods’.[17]

The defendants sought leave to argue the correctness of Parton and cases that followed it. A similar submission had been put, and rejected, in Capital Duplicators Pty Ltd v Australian Capital Territory [No 2].[18] They argued that as Parton departed from the narrow view of excise expressed by Griffith CJ in Peterswald v Bartley,[19] it was incorrectly decided. Moreover, the defendants sought to justify this narrow reading of section 90 by reference to other sections in the Constitution: principally section 55, that draws distinctions between law imposing duties of customs and those imposing duties of excise, and section 93, that speaks of duties of excise ‘on goods produced or manufactured in a State’.

The majority rejected the submission that the ‘excise’ should be limited to a tax on locally manufactured or produced goods. In doing so they cited the authority of Dixon J in Matthews v Chicory Marketing Board (Vic)[20] and concluded that:

[t]here is no common use of the term “excise” in the Convention Debates which might illuminate its meaning, save that it does not include the fees for a licence to carry on a business which, in England, were sometimes called excise licences.[21]

For the majority the key underlying factor was the effect of Federation. The adoption of Dixon J’s view in Parton that the exclusivity of customs and excise duty contained in section 90 was to bring about ‘real control of taxation of commodities and to ensure that the execution of whatever policy it [the Commonwealth] adopted should not be hampered or defeated by State action.’[22] The defendant’s argument that the limited purpose of section 90 was to defend the integrity of the Commonwealth’s tariff policy was rejected by the majority. The majority argued that if the section was so limited then an amendment to the 1891 draft Constitution adopted by the Adelaide Convention in 1897 ended such a limited reading of the section. They concluded that ‘[t]he history of s 90 denies any necessary linkage between the exclusivity of the power to impose duties of excise and Commonwealth tariff policy.’[23]

For its part the minority based its decision on the belief that the phrase ‘duties of excise’ is used in a restricted sense in the Constitution: that is, an impost on a good at the point of its manufacturing and production. This conclusion was reached after the consideration of a number of factors. First, the historic understanding of the term at the time of Federation. In particular they quote Griffith CJ’s statement in Peterswald v Bartley[24] that:

[b]earing in mind that the Constitution was framed in Australia by Australians, and for the use of the Australian people, and that the word “excise” had a distinct meaning in the popular mind, and that there were in the States many laws in force dealing with the subject, and that when used in the Constitution it is used in connection with the words “on goods produced or manufactured in the States,” the conclusion is almost inevitable that, whenever it is used, it is intended to mean a duty analogous to a customs duty imposed upon goods either in relation to quantity or value when produced or manufactured, and not in the sense of a direct tax or personal tax. Reading the Constitution alone, that seems to be the proper construction to be put upon the term.

Second, the surrounding sections in the Constitution (such as section 93), argued the minority, ‘give the clearest indication that duties of excise are restricted to duties upon goods produced or manufactured in a State.’[25]

Like the majority, the minority dealt with the purpose or objective of Federation. However, unlike the majority, they did not view section 90 as creating an economic union. Rather, its limited function was to establish a customs union. It achieved this by establishing the correlation between customs duties and excise duties. Thus the purpose of the section was, in the minds of the minority, to establish the exclusivity necessary for Commonwealth Parliament to implement its tariff policy (be it protectionist or free trade).

Standing in the way of the minority’s conclusion that ‘duties of excise’ was used in a narrow sense was the High Court’s decision in Parton. In particular Dixon J’s view that the objective of section 90 was to give the Commonwealth real control over the taxation of goods. Thus a tax upon a step in the distribution of goods produced the same effect as a tax upon its manufacturing or production.

The minority rejected both these arguments on the basis of the historical accounts of the intentions of the framers and that ‘it is plainly incorrect to assert that a tax upon a commodity at any point in the course of distribution before it reaches the consumer has the same effect as a tax upon its manufacture or production.’[26] The minority concluded that the authority of Parton should not be allowed to stand.

3. The Framers and Section 90

Given that one of the common themes of the majority and the minority in Ha has been recourse to the intentions of the framers of the Constitution in establishing the meaning of section 90, it is important to pause and assess the meaning of ‘duties of excise’ and the effects of Federation. While fidelity to the framers is by no means a conclusive argument as to how the Constitution should be construed, for both the majority and the minority it was clearly persuasive. In particular both judgments focused upon an amendment put to the 1897 Adelaide Convention by Sir George Turner. For the majority the amendment by Turner (with its qualifying phrase ‘upon goods the subject of customs duties’) meant that the intention of the framers was to give to the Commonwealth exclusive power over customs and excise duties free from any linkage between the two. The minority, as we have seen, believed that far from destroying the link between customs and excise the amendment strengthened it.

So what was the exchange in Adelaide in 1897 that has come to determine the financial fate of the States? The surprising fact in the debate that supposedly had so much at stake is its brevity. The entire debate which both the minority and majority highlight is outlined below:[27]

The CHAIRMAN: I will put the clause in separate paragraphs. The question is, ‘that paragraph 1 be agreed to.’

Mr WALKER: I ask for information. Perhaps my hon. friend Mr McMillan will favour us with a definition of the words ‘bounties’ in line 29.

Mr MCMILLAN: I should rather be inclined, upon a general question of this kind, to turn to my friend for a definition, as I do not at all pretend to be a higher authority than he is. It seems to me that the word ‘bounties’ is a general term which might include almost anything specially done by the Government to induce trade and foster any particular industry. I think the word is general in its application.

Sir GEORGE TURNER: This clause provides that: The Parliament shall have the sole power and authority, subject to the provisions of this Constitution, to impose Customs duties and to impose duties of excise upon goods for the time being the subject of Customs duties. Why should we limit our power to impose excise upon articles which are the subject of Customs duty. I fail to see the necessity of these words, because it might be that we would deem it to be advisable to have an excise duty on an article which was not subject to Customs duty. If we leave these words in we limit the power of the Federal Government, but if we strike them out we enlarge their power. Unless some strong reason can be shown for the retention of the words, I propose:

To leave out ‘upon goods for the time being the subject of Customs duties.’ The CHAIRMAN: I would point out that it will be necessary first to strike out the word ‘and’ in line 3 of this paragraph.

Sir GEORGE TURNER: Then I will move that.

Sir JOHN DOWNER: I think the other words ought to remain in. We had a great deal of discussion upon the question of whether they were to impose excise duties on goods that were not the subject of Customs. I think Mr. McMillan, who took a prominent part in the discussion, will recollect the circumstances and the reasons.

Mr MCMILLAN: It seams to me that under almost every conceivable circumstance an excise duty would be a sort of counterpoise to an import duty. But you may have an excise proposed upon an article which is not the subject of Customs duty, and perhaps in a Bill of this sort it would be as well not to do anything that would restrict the power of the Federal Parliament. Amendment – to omit the words ‘upon goods for the time being the subject of Customs duties’ – agreed to.

First paragraph of clause as amended agreed to.

The major problem with the above exchange is that it is conclusive of very little. Indeed, there is no definition of ‘excise’ offered. McMillan defers his ‘authority’ on financial matters to Turner. Turner himself justifies the amendment on the basis of giving to the Federal Parliament an unlimited power over excise. McMillan in response makes a half-hearted statement about ‘conceivable circumstances’ that might slip through the exclusive net of the current wording. More important however, is McMillan’s linking of excise to customs duties. They are, as he states, ‘a sort of counterpoise’ to each other. Whatever one thinks of the guiding principle of the framers it is difficult to accept that the States’ economic future was dependent on this interchange between three members of the 1897 Convention.

What then is to be found in the pages of the Convention Debate as to the meaning of ‘excise’? We know that the question of what was an excise duty was by no means unfamiliar to the framers. Indeed, by the time of Federation all colonies had imposed duties on commodities such as spirits, tobacco and beer.[28] When the delegates to the Australasian Federal Convention met in Sydney, 1891, both Andrew Inglis Clark and Charles Cameron Kingston had considered the future of such imposts under the new Commonwealth. Inglis Clark in section 84 of his draft Constitution states that:

The Customs Duties and Excise Laws of each Province shall, subject to the provisions of this Act, continue in force until altered by the Federal Parliament; but all moneys collected, received, or recovered under such Laws shall form one Consolidated Revenue Fund, to be appropriated by the Federal Parliament for the Public Service of the Federal Dominion of Australasia in accordance with the provisions of this Act.[29]

Similarly according to Kingston the Federal Parliament would have power:

To impost and collect taxes and duties of Customs and Excise, but so that all such taxes and duties shall be uniform throughout the Union; and no tax or duty shall be imposed on any article exported from one colony into another.[30]

As with many sections in the Constitution the approach taken by Inglis Clark and Kingston, coupled with the drafting skills and authority of Sir Samuel Griffith, framed the debate of the other delegates and ultimately the shape of the Constitution.[31]

When the clause in the draft bill was debated in Sydney in 1891 most of the discussion centred around the implementation of uniform duties of customs and not the issue of excise.[32] Overshadowing the debate was the posturing of the representatives of free trade and protectionist colonies. Indeed, Sir George Dibbs attempted to amend the clause so that the tariff rate in Victoria became the rate in the Commonwealth until the Parliament determined it to be otherwise.[33] The specific discussion of the clause was dominated by the question of the timing of the Commonwealth’s exclusive jurisdiction. Lieutenant-Colonel William Smith from Victoria proposed that there should be a 12-month delay from the imposition of uniform duties of customs after the passage of such a Commonwealth Act so as to prevent merchants in the free-trade colonies from swamping the market with goods.[34] While this amendment was ultimately withdrawn it dominated the discussion.[35] While debate tended to bog down in specifics, Alfred Deakin pointed out what would have been obvious to all. That is, the imposition of a uniform tariff ‘must be something like a commercial revolution’ for the colonies.[36]

Discussion of the clause in Adelaide in 1897 (no renumbered clause 82) again focused primarily on the timing of uniform duties of customs rather than issues connected with excise. What other discussion there was focused upon the effect of the clause on existing or proposed bounties on production offered by the colonies. Amendments proposed by Sir Edmund Barton,[37] Henry Higgins[38] sought to provide some clarity to the clause or provide a solution to the problem of protecting contracts entered into by the colonies prior to the imposition of uniform duties. Ultimately, these amendments were either withdrawn or defeated.

Later that year at the second Sydney Convention there was no specific discussion of the clause. Rather the Convention dealt with amendments put forward from the various colonial parliaments. One amendment from the Legislative Council of New South Wales dealt with a clause in the draft bill that was ultimately to become section 51(i) of the Constitution dealing with trade and commerce. The clause as it stood in Sydney 1897 stated that the Commonwealth Parliament would have power with respect to:

Customs and excise and bounties, but so that duties of customs and excise and bounties shall be uniform throughout the commonwealth, and that no tax or duty shall be imposed on any goods exported from one state to another.

The NSW Legislative Council sought to leave out the words ‘Customs and excise and bounties, but.’[40] The debate that followed between Isaacs and Barton gives perhaps the best account of what these two framers understood by the phrase ‘excise’.

For his part Isaacs referred to a ‘very valuable report’ drawn up by the ‘Accountants’ Committee’ in Victoria. The Committee included members of the colonial bureaucracy such as Dr Wollaston (Secretary for Trade and Customs), Mr Bruford (Deputy Commissioner of Taxes), Mr Allen (Accountant of the Treasury), Mr Cumming (Acting Accountant, Post and Telegraph Department) and Mr Fenton (Assistant Government Statist). The report had dealt with a number of financial matters including the definition of ‘excise’. Isaacs noted that the meaning of the phrase had come to have ‘a very much wider meaning than we intend in this bill’. Such things as auctioneers’ licences, gun licences and taxes on carriages were included. Isaacs (after a request of Barton) gave the definition of what he believed was intended by the phrase ‘excise’ in the draft Constitution. He says:

What we intend by excise would be covered by the definition in this report, “a duty chargeable on the manufacture and production of commodities.” The word is variously defined in standard dictionaries. We should give attention to this matter, so as not to be carried further than we intend to go. In modern times, excise is used as a very wide term.[41]

Barton likewise acknowledged that the meaning of the phrase had expanded in England. However, he was of the view that the meaning in the draft Constitution was not so expansive. He preferred the understanding of the phrase developed in the United States which was such ‘as not to interfere with the regulation of their [the States’] own internal concerns by the states on such matters as the granting of licences to hawkers, auctioneers, and so on.’[42]

The Supreme Court’s understanding of the phrase was introduced by Isaacs during the course of the debate. Unlike Barton, Isaacs appeared to be well aware of the approach of the Supreme Court of the United States.[43] He notes that ‘[t]he word ‘excise’, as used in the American Constitution at that time, would probably have a very different meaning from what we now understand by it.’[44] Indeed, by 1902 the United States Supreme Court in Patton v Brady[45] had stated that:

The tax on manufactured tobacco is a tax on an article manufactured for consumption, and imposed at a period intermediate the commencement of manufacture and the final consumption of the article.[46]

However, Isaacs did draw the attention of the Convention to the Supreme Court’s decisions in Woodruff v Parham[47] and Brown v Houston.[48] In Woodruff the Court held that a tax upon the sale of a good produced in another State was not unconstitutional if ‘[t]here is no attempt to discriminate injuriously against the products of other States or the rights of their citizens.’[49]

What is evident in the discussion between Isaacs and Barton is that they intended that the meaning of ‘excise’ in the Australian Constitution was to be used in a narrower sense than that in the United States and England. Indeed, Barton stated that ‘if on consideration we find there is any doubt about that, I think it will be a comparatively easy matter to provide for it.’[50] The narrow view of the meaning of ‘excise’ as a tax on production and manufacture is supported by comments made by Sir John Gordon at the Sydney Convention of 1891. He stressed that the definition of ‘excise’, especially that developed in England, ‘embraces a good deal more than the local parliaments will give up.’[51] He continued: ‘I have no doubt every member of the Convention intends, [that excise] is simply duties upon articles of home production, especially spirits.’[52]

When section 90 was again discussed in Melbourne in 1898 the debate that occurred focused primarily on the timing of the imposition of uniform duties and the question of bounties. This last issue provided various attempts by delegates to preserve the rights of the States to provide export bounties on locally produced goods. Turner for one withdrew an attempt to allow bounties ‘for the promotion of agriculture, horticultural, viticulture, or dairying industries’.[53]

So what conclusion can we draw from the Convention Debates as to the framers’ intent as to the meaning of ‘excise’? What is evident is that the debate as to the operation of section 90 focused on the loss of customs duties, the imposition of uniform customs duties, the rate at which the Commonwealth would impose its duties, and the issue of bounties. Very little discussion was set aside for the issue of excise. As part of its deliberation the 1897 Adelaide Convention had presented to it a number of statements regarding the income of the colonies. From this material it is possible to demonstrate the size of the income involved.

Table 1: Customs and Excise – Revenue Collected[54]

Annual Mean of Three Years 1893, 1894 and 1895

Colony
Customs Duties
% of Total
Excise Duties
% of Total
Misc
% of Total
Total

£

£

£

£
NSW
2,074,460
88.2%
263,747
11.1%
17,312
0.7%
2,355,519
Victoria
1,751,307
84.3%
301,964
14.5%
23,146
1.1%
2,076,417
SA Proper
566,849
96.2%
18,425
3.1%
4,190
0.7%
589,464
SA NT
31,291
99.8%
70
0.2%
31,361
WA
615,030
98.9%
6,775
1.1%
621,805
Tasmania
293,866
93.4%
18,111
5.6%
2,465
0.8%
314,442
QLD
1,142,318
95.7%
44,208
3.7%
7,357
0.6%
1,193,883
Total
6,475,121
90.1%
646,455
9.0%
61,315
0.8%
7,182,891

Only 1895 figures are used due to, as the report puts it, ‘the exception progress of Western Australia.’

One explanation for the relative paucity of debate on the question of excise may be the relative size of the income involved. Clearly, the reason that the issue of customs dominated debate was its overwhelming importance to colonial coffers. For the smaller colonies of South Australia, Western Australia, Tasmania and Queensland customs duties made up over 96 percent of their income. Even for the larger colonies of Victoria and New South Wales income from customs duties was seven to eight times greater than that derived from excise duties. The importance of customs duties is reflected in the debates.

A second explanation for the relative silence on the issue of excise can be put down to a common understanding of what was being made exclusive to the Commonwealth. As Gordon noted in 1891 it is probably true that the delegates had ‘very little doubt’ as to the meaning of ‘excise’ in their colonies.[54] Moreover, Barton’s view that if ‘doubt’ (as to its meaning crept in to the Convention) then they would take the ‘comparatively easy’ task of defining it.[55] The fact that this option was not taken up seems to suggest that there was little doubt. What then is to be concluded about the meaning of ‘excise’? Clearly what discussion the framers had about the issue was predicated on the belief that what was becoming exclusive to the Commonwealth was ‘excise’ used in a narrow sense. As Quick and Garran state in their account of the section:

The fundamental concept of the term is that of a tax on articles produced or manufactured in a country. In the taxation of such articles of luxury, as spirits, beer, tobacco, and cigars, it has been the practice to place a certain duty on the importation of these articles and a corresponding or reduced duty on similar articles produced or manufactured in the country; and this is the sense in which excise duties have been understood in the Australian colonies, and in which the expression to be used in the Constitution of the Commonwealth. It was never intended to take from the States those miscellaneous sources of revenue, improperly designated as ‘excise licenses’ in British legislation. It was considered essential that the two correlative powers over customs and excise, properly so called, should run together and be exclusively vested in the Federal Parliament. It was not contemplated that the Federal Parliament, in acquiring the necessary power to provide uniformity of commercial laws, should absorb the absolute and exclusive control of so wide an area of inland taxation as would be covered by licences similar to those enumerated in the above list, such as auctioneers and pawnbrokers.[56]

It can be concluded then that the narrow meaning of excise was intended to be used when the framers drafted the Constitution. That is, a tax on a good at the point of its manufacture or production.

4. Federation and the Authority of Dixon

The forthcoming centenary of Federation has prompted a re-assessment, in some quarters, of the standard accounts of the events and reasons that brought together the disparate colonies.[57] If the historiography of Federation has developed to take account of the shifting social and political temperament so too has the effect of Federation has been a theme of constant re-interpretation. A key judicial figure in the interpretation of the effect of Federation and the framers’ intent in the hundred years since 1901 has been Sir Owen Dixon. Dixon, who Fricke describes as a ‘juristic giant’, has in a number of areas come to define the traditional wisdom.[58] For instance, his account of the rejection by the framers of a ‘Bill of Rights’ because of their ‘steadfast faith in responsible government’[59] has often been deployed to resist arguments designed to encourage the implication of specific rights into the Constitution.[60] Yet, Dixon’s account overlooks the fact that race, perhaps more than responsible government, was uppermost in the framers’ mind when they rejected an Australian ‘Bill of Rights’.[61]

So too in the area of section 90 the Dixon formulation in Matthews and Parton now stands in the way of any return to the narrow meaning of excise discussed by Griffith CJ in Peterswald. The irony of this situation is that Dixon invoked an interpretation of the intention of the framers which the actual framers (such as Griffith, Barton and Isaacs) would not have recognised. As Dixon J says in Parton:

In making the power of the Parliament of the Commonwealth to impose duties of customs and of excise exclusive it may be assumed that it was intended to give the Parliament a real control of the taxation of commodities and to ensure that the execution of whatever policy it adopted should not be hampered or defeated by State action. A tax upon a commodity at any point in the course of distribution before it reaches the consumer produces the same effect as a tax upon its manufacture or production. If the exclusive power of the Commonwealth with respect to excise did not go past manufacture and production it would with respect to many commodities have only a formal significance.[62]

No one would doubt that the framers accepted exclusivity to the Commonwealth of the power to impose excise duties. But it is difficult to accept the ‘assumption’ that the framers agreed that the Commonwealth would have ‘a real control of the taxation of commodities and to ensure that the execution of whatever policy it adopted should not be hampered or defeated by State action’ when we know that they adopt the narrow meaning of excise. ‘Real control’, to use Dixon’s phrase, would surely be dependent on the broadest possible definition of excise, an approach rejected by the framers.

The Dixon campaign for an expansion of the meaning of excise to include taxes in relation to sale and consumption of goods commenced at least two decades before his judgment in Matthews. During the 1927 Royal Commission on the Constitution of the Commonwealth Dixon, representing a sub-committee of the Committee of Victorian Counsel (the sub-committee consisted of Dixon, Menzies and Ham), made a number of submissions relating to the Constitution. In respect of the financial regulation Dixon submitted that the Constitution, as interpreted, had proved to be ‘defective’.[63] It is perhaps here that he first deployed his ‘assumption’ that the effect of Federation was to grant financial regulation to the Commonwealth as ‘a coherent whole, without interference or disturbance by other [state] legislation.’[64] Dixon continued in respect of section 90 to suggest that ‘the scheme actually adopted seems inadequately expressed.’[65] Of course it is inadequately expressed if the assumption which guides the conclusion is correct.

As a means of rendering exclusivity to the Commonwealth power with respect to section 90 Dixon proposed the following amendment:

The power of the Parliament to impose taxes in relation to the importation, production, sale, purchase, use, and consumption of goods, and to grant bounties on the production or export of goods shall be exclusive.[66]

When the Royal Commission reported in 1929 the Commission rejected the views expressed by Dixon on behalf of the Committee of Victorian Counsel. The Commission concluded that:

the position of the States has been prejudiced by the interpretation which has been placed upon the term “excise”. There does not appear to be any sufficient reason why the Commonwealth should have exclusive power over all indirect taxation imposed immediately upon or in respect of goods.[67]

This reference was by way of a response to a suggestion by Rich J in the Commonwealth v South Australia[68] that the Constitution gave the power to the Commonwealth over all indirect taxation. In the end the Commission concluded that ‘excise should be taken to apply only to those goods which are for the time being subject of customs duties, as was suggested in the 1891 draft of the Constitution.’[69] The Commission recommended the insertion into the Constitution the following paragraph at the end of Section 90:

Notwithstanding any other provision of this Constitution the power of the Parliament to impose duties of excise shall not be exclusive in respect of goods which are not for the time being the subject of customs duties.[70]

Amendment to the Australian Constitution has, with one notable exception, been generally unsuccessful. However, the provisions of section 128 are by no means the only avenue by which that change may be executed. Arguably, constitutional interpretation has been more successful a means of bringing about substantive change. Such has been the case with Dixon J’s interpretation of section 90. Dixon J was appointed to the High Court on 4 February 1929 at the age of 42. His first major case dealing with the meaning of excise was Matthews. In that case the Court by majority (Rich, Starke and Dixon JJ; Latham CJ and McTiernan J dissenting) held that the levy on producers of £1 for every half acre of land planted with chicory was an excise within the meaning of section 90 of the Constitution. Even though Dixon J was in the majority his views of a broader meaning of the excise were not strictly endorsed by the other members of the majority. For his part Rich J merely concluded that ‘the planting of chicory is an essential step in its production’ and as such the levy amounted to a tax on production.[71] In other words, Rich J accepted the narrow meaning of excise as a tax on a good at the point of its manufacture or production. So, too, Starke J accepted that the levy was a tax on a commodity produced for sale.[72]

Dixon J’s judgment in Matthews involved a long account of the meaning of excise. He noted that the phrase lacked clarity because of the ‘very large denotation of which it was capable.’[73] While he accepted that the constitutional use of customs, bounties and excise on production or export of goods were ‘closely associated’ with each other,[74] he concluded that this ‘scarcely suppl[ied] a foundation for a logical inference that no duty is an excise unless it is levied immediately on the manufacture or production within Australia of a commodity.’[75] In what followed Dixon J drew on various etymological dictionaries, histories of taxation, the works of Blackstone, Mills and Griffen to demonstrate that the word was not limited to merely a tax on manufacture and production. What consideration there was of the framers’ views was through Quick and Garran, which Dixon J says ‘supplied the foundations of the decision in Peterswald v Bartley’.[76] Quick and Garran’s account of the section, as we have seen, is a summary of the framers’ intent in the area. What provided the foundation for the decision in Peterswald was the intimate knowledge of Griffith CJ what was intended. Dixon J thus concludes that the history of the word ‘does not disclose any solid ground for saying that, according to any established English meaning, an essential part of its connotation is, or at any time was, that the duty called by that name should be confined to goods of domestic manufacture or production.’[77] Moreover, Dixon J concluded that the definition of excise should not be restricted by ‘an arithmetical relationship to quantity’[78] as was suggested in Griffith CJ’s definition in Peterswald.

The next major step in the expansion of the meaning of excise occurred in Parton.[79] As in Matthews the High Court divided on whether or not an impost of a quarter of a penny per gallon of milk sold or distributed amounted to an excise within the meaning of section 90 of the Constitution. The Court (Rich, Dixon and Williams JJ; Latham CJ and McTiernan J dissenting) held that the purported levy did amount to an excise and was thus invalid. In the leading majority judgment Dixon J gave further consideration to the meaning of excise.[80] He again took the view that excise should not be limited to a tax upon a good at the point of its manufacture or production. Dismissing this argument he said that: ‘A tax upon a commodity at any point in the course of distribution before it reaches the consumer produces the same effect as a tax upon its manufacture or production.’[81] The only limitation on the widest possible definition of excise for Dixon J was the Privy Council’s decision in Atlantic Smoke Shops Ltd v Conlon which held that a tax on consumption was not an excise.[82]

The expansion of the meaning of excise within section 90 of the Constitution has come to limit the constitutional ‘space’ available to the States to impose levies and raise revenue. This expansion can in part be traced to the definition given by Dixon J in Matthews and Parton. It is an indication of the authority that Dixon J commanded that he could in a little over a decade, change what was the accepted definition of excise.[83]

So far it has been argued that the historical material points to the conclusion that the meaning of excise for the framers was a narrow one and that its expansion has been at the cost of fidelity to that intention. However, the response to this argument is to ask why should we be bound by the framers’ view as to the meaning of section 90? Clearly, the world is a different place to the one in which the framers’ drafted our Constitution. The changing historical relationship between the two levels of government was made manifest in the High Court’s decision in the Engineers’ Case.[84] The arguments for adherence to the views of the framers has often been put in terms of guiding original intent. Original intent, as with many other interpretative methods, is a search not only for meaning, but legitimising principles attached to that meaning. In this sense the framers’ intent as to the meaning of any particular word or phrase in the Constitution brings with it the authority of the authors. In terms of the meaning of ‘excise’ we have a number of statements by prominent framers as to the meaning they preferred.

A second reason for the adhering to the framers’ intention in this area focuses not so much on the change in the section’s interpretation but the method by which that change is brought about. In essence this argument is a democratic one. Jeffrey Goldsworthy, for one, has responded to ‘non-originalist’ approaches to constitutional interpretation by focusing on the problem of determining meaning by recourse to abstract community values. ‘Non-originalism’ he says, ‘holds that the meaning of statutory or constitutional provisions at any particular time depends entirely on the concepts, values and purposes of that time, rather than those of the law-makers.’[85] Goldsworthy argues that if a constitutional interpretation is to move from the meaning of the framers, and that is done in the name of contemporary understanding, then it should be put to the people. He says, ‘[t]he only reliable way of determining the attitudes of today’s Australians is to ask them.

That is the purpose of the referendum procedure prescribed by section 128.[86] As we have seen the definition reached by the High Court after Parton looks remarkably close to the constitutional amendment proposed by Dixon at the 1927 Royal Commission into the Constitution. That being the case, the argument goes, why should not the people have had the opportunity to determine the issue for themselves?

It is not the purpose of this article to enter into the debate as to the best means (if that is indeed possible) to interpret the Constitution. There is now a growing literature on the use of original intent to uncover the meaning of sections of the Constitution.[87] With the odd exception88 the use of the original intent of the framers will rarely be fruitful or appropriate. The Constitution should not be subject to the crushing weight of the dead hand of the past. Indeed, as one framer noted, the Constitution’s authority rests with those ‘who are in the immediate presence of the problems to be solved’ and not the ‘will and intentions of men long since dead’.[89] Yet, there is a place for history. It should be evoked as a means to ‘identifying the contemporary meaning of language used, the subject to which that language was directed and the nature and objectives of the movement towards federation from which the compact of the Constitutional finally emerged.’[90] It is in this context recourse to the history of the section has been made.

Beyond the historical argument there another reason, perhaps a more compelling one, that I believe also agitates for the return to the narrow definition. This argument is one based on a legal realist account of the effects of the abolition of this revenue stream for the States and Territories. It is an argument that has been acknowledged by the High Court in all challenges (including Ha)[91] to the franchise fee cases. The next section will address the rise of the franchise fee cases and their importance to State and Territory governments and the likely effects of Ha.

5. Cigs, Petrol and Grog Up: The Franchise Fee Cases

If taxes are one of the certainties in life, then their manifestation in the State arena is captured by the famous banner headline ‘Cigs, Petrol and Grog Up’ which inevitably heralded in the morning after a state budget. The genesis of these licensing schemes, as we have seen, can be found in England where licences to conduct certain activities were considered excise duties.[92] In the Australian context the impetus for licensing schemes based on previous periods as a way to evade the expanded meaning of excise can ironically be found in the judgment of Dixon J in Parton. Discussing the decision in Hartley v Walsh[93] Dixon J distinguished that case on the basis that it could be placed in ‘the category of a licence fee in respect of a business calculated on past business.’[94] He went on to note that ‘something like the licence fee of a victualler calculated on the amount expended by him in the previous year in purchasing liquor ... I should not regard as an excise.’[95]

Perhaps encouraged by this statement Victoria established under the Licensing Act 1958 (Vic) a means by which a percentage of the sales of alcohol could be built into the cost of the licence. Under section 19(1)(a) of the Act a licence holder was required to pay a fee of six percent of the value of the liquor that was purchased during the 12 months ending on the last day of June. A ‘temporary’ licence could be issued under section 19(1)(b) which established the fee at £1 per day plus six percent of the value of the liquor purchased for sale. In a split decision the High Court held the past period licence valid[96] and the ‘temporary’ licence invalid.[97] For his part Dixon J ‘repent[ed]’98 from his observations in Parton holding that the six percent fee represented a tax on liquor on its way to the consumer and as such was an excise.[99] McTiernan J followed the precedent established by the majority in Parton to hold both licences invalid. Similarly, Windeyer J accepted that licences were in substance a tax on an article of commerce.[100] Fullagar J preferred to follow the narrow definition of Griffith CJ in Peterswald.[101] Kitto J took the view that the criterion of liability for both licences was not the purchase of liquor but the acceptance of the licence. As such it was not a tax on a good on its way to the consumer.[102] Similarly Taylor J held that the levy was not a tax upon a commodity which was passed onto the consumer.[103] Menzies J, while accepting the broad definition of excise,[104] drew a distinction between the past period licence and the temporary licence holding the former valid and the latter invalid.[105]

The past period formula developed in Dennis Hotels was extended to tobacco in Dickenson’s Arcade Pty Ltd v Tasmania[106] and petroleum products in H C Sleigh Ltd v South Australia.[107] In both cases justices of the High Court expressed their dissatisfaction with the approach taken in Dennis Hotels.[108] Notwithstanding their concern over the anomalous situation that the licensing cases established, members of the Court were aware of the importance of this revenue stream to State and Territory governments (see Figure 1). Thus the Court resisted attempts to reconsider the correctness of the licence fee cases in the 1980s.[109]

Figure 1: Value of Taxes Collected by the States and Territories by Licensing Schemes ($millions)

Source ABS Catalogue No. 5506.0, 1995–96, 1997–1998.

The various challenges to the cases, however, lead to some discussion as to how the anomaly could be justified in terms of the general expansion in the coverage of section 90. In Philip Morris[110] a majority of the court (Mason CJ, Deane, Dawson, Toohey and Gaudron JJ; Brennan and McHugh JJ dissenting) held that a wholesale sale tax on tobacco was not an excise when calculated by reference to a past period. In their joint judgment Mason CJ and Deane J noted the significance of the licensing cases to the States. They stated that:

[t]here are powerful considerations against overruling the actual decisions in those cases. Financial arrangements which are of great importance to the governments of the States and perhaps to the economy of the nation have been made for a long time past on the faith of these decisions. The power of this Court to overrule its previous decisions would not be properly exercised to disturb those arrangements unless, in the light of later insights into the true meaning of the Constitution, obedience to its terms or the interests of certainty in those arrangements clearly demanded that those decisions be reconsidered.[111]

Figure 1 shows the reliance that the State and Territory Governments now have on the franchise taxes. Between 1991–92 and 1996–97 the absolute dollar figure increased from $3379 to $5199 million. This amounts to an increase of 53.8 percent over the period. The decline in the year 1997–98 reflects the impact of the High Court’s decision in Ha.

Mason CJ and Deane J indicated that one means of isolating the cases was in terms of the ‘special fields’ of tobacco and alcohol.[112] On this basis they argued that the licensing fee would not amount to an excise because the imposition of the fee had an element of ‘regulatory legislation controlling the sale and distribution of a particular commodity, which is designed to protect the public interest in the light of the characteristics of that commodity.’[113]

Dawson J considered the basic purpose of section 90 which he concluded was the creation of a ‘customs union’.[114] As such he indicated his belief that the ‘basic error was to depart from the limited conception of an excise duty which the Court laid down in Peterswald v Bartley’.[115] Notwithstanding his preference for the narrower meaning he concluded that the facts in Philip Morris were not distinguishable from the licensing cases and thus he applied the law as stated there to hold that the fee was not an excise.[116]

Toohey and Gaudron JJ argued that it had not been established that the prohibition in section 90 extends to goods produced or manufactured in Australia.[117] They argued that the licensing cases could be understood by determining whether or not the Act imposing the liability affects the good as a subject of Australian manufacturing.[118] Thus presumably a tax will be an excise if it discriminates between locally produced and imported products, or it does not fall on the production or manufacture of the good. Such a tax, they suggested, ‘affects tobacco products in their character as articles of commerce rather than in their character as goods manufactured in Australia.’[119] Implicit in their judgment is a preference for the narrower definition of excise in Peterswald.

The next case to question the authority of the franchise fee cases was Capital Duplicators.[120] Again the Court was urged, by the Australian Capital Territory and South Australia, to return to the narrow definition of excise. The other states and the Commonwealth argued against the reconsideration of Dennis Hotels and Dickenson’s Arcade. The Court (Mason CJ, Brennan, Deane and McHugh JJ; Dawson, Toohey and Gaudron JJ) held that the licence fee imposed by the Territory on X-rated videos was an excise within the meaning of section 90. The majority in rejecting the narrow meaning of excise again reflected on the implications of overturning the broad meaning. They stated that to return to such a position would require that forty years of case law be set aside. Moreover,

[i]n that time, federal financial arrangements have been designed and implemented on the basis of the interpretation given by this Court to s.90. To desert that interpretation now would have widespread practical ramifications and generate extraordinary confusion.[121]

As to the actual franchise fee cases the majority concluded that:

[i]n refusing to reconsider the franchise decisions relating to liquor and tobacco, the Court has recognized the fact that the States (and the Territories) have relied upon the decisions in imposing licence fees upon vendors of liquor and tobacco in order to finance the operations of government. Financial arrangements of great importance to the governments of the States have been made for a long time on the faith of these decisions.[122]

For his part, Dawson J again expressed his preference for the narrower meaning of excise in Peterswald. He did this after a long review of the historical material and case law in the area. Toohey and Gaudron JJ adhered to their view that the purpose of section 90 was limited to the granting of effective control over exports and imports.[123]

In Ha the majority in the case also acknowledged the importance that the schemes now had for State and Territory governments.[124] Indeed, they noted that States and Territories must have been conscious of the risk they were taking in seeking to question the meaning of excise as established in Parton.

What the above indicates is that the wisdom of overturning the franchise fee cases in the face of a judicial anomaly has been considered in terms of its wider policy implications for the States and Territories. For instance, in re-assessing Dennis Hotels and Dickenson’s Arcade in terms of the ‘special category’ of the goods involved, Mason CJ and Deane J in Philip Morris effectively threw the States and Territories a financial life boat. So too the return to first principles by the minority in Ha would have meant that the States and Territories could have imposed a distribution tax, sales tax or even a consumption tax so long as it fell indiscriminately as between locally produced goods and imported goods.[125]

So what then is the result for the States and Territories with regard to the franchise fee cases as a result of Ha? There are a number of issues to be considered. First, it should be remembered that the majority in Ha did not overrule Dennis Hotels or Dickenson’s Arcade.[126] Rather the majority clarified the narrow ground upon which they now stand, that is, the basic approach taken by Kitto J in Dennis Hotels. In other words, an impost will be an excise if it operates as a tax upon a step taken in process of producing or distributing a good. However, a tax will not be an excise if it has ‘no closer connection with the production or distribution than that it is exacted for the privilege of engaging in the process.’[127] To this approach Brennan J added a reference to ‘the revenue raising and non-regulatory purpose of the scheme.’[128] What the court appears to be saying is that a licence fee to conduct a business must approach something like a fee for service otherwise it runs the risk of being an excise. Thus in Ha the majority commented that the particular licensing scheme was a ‘revenue-raising inland tax on goods.’[129]

Second, while the case involved fees levied on tobacco licences the majority noted the reservations that had previously been expressed about H C Sleigh in Capital Duplicators [No 2]. They state that those reservations ‘will not have passed unnoticed.’[130] With respect to alcohol they concluded that, as a consequence of the rejection of the Mason CJ and Deane J view in Philip Morris that tobacco and alcohol were in a special category, that Philip Morris and Coastace Pty Ltd v NSW[131] These statements in effect have put an end to the revenue raising schemes based on petrol and alcohol.

Third, the Federal government rescue package will see the Commonwealth collect the tax and hand it back to the States and Territories.[133] This included a rise in the Commonwealth’s duty of 8.1¢ per litre of petrol, 15 percent on alcohol and a $167 per kilo tax on tobacco. The uniformity of these taxes, as we know, is a constitutional requirement. The ‘administrative nightmare’ referred to by the then Queensland Treasurer Joan Sheldon, relates to the fact that the rates at which these taxes were previously imposed in the States and Territories varied considerably. For instance, Queensland imposed no levy on petrol and South Australia 9.85¢ per litre. It is yet unclear whether or not the level at which these taxes are pitched will fully compensate individual State and Territory governments. However, the Tasmanian State government has reported a $17.9 million or 11.4 per cent decrease in the estimated receipts.[134]

As a result of Ha there is now little flexibility for the States and Territories to initiate specific programmes out of the profits of these taxes. For instance, the Northern Territory currently imposes a ‘Living With Alcohol Program Levy’ on alcohol sales to deal with the problems associated with alcohol abuse. So too, the New South Wales government had a ‘3 x 3’ initiative of 3¢ per litre of petrol for three years to pay for major road works. Since Ha such initiatives on their face appear questionable.

In one sense the decision in Ha is the antithesis of federalism. If federalism is predicated on a degree of diversity then the outcome from this decision is a high degree of uniformity. Moreover, one would assume that the level at which the Commonwealth imposes the new excise duties will be difficult to raise. Presumably it will require the agreement of all the State and Territory governments and a willingness on the part of the Commonwealth. If this is the case then the value of this revenue source to the States and Territories will be eroded over time.

6. The High Court and Gambling

What is the relationship between the High Court and gambling in Australia? At one level the answer is very little. The Court has from time to time been involved in issues relating to the regulation of the process. This interaction relates to the interpretation of the common law or statutes that have been an aspect of Australia since it colonial foundations. As Windeyer noted in his 1929 publication, The Law of Wagers, Gaming and Lotteries in the Commonwealth of Australia, the original laws in the colonies were those of England.[135]

However, it is not in this sense that the High Court has arguably had its greatest impact. The link is to be found in the way that the High Court has shaped the States’ financial foundations. The uniform taxation schemes and the interpretation of section 96 has meant that the States are now highly dependent on the Commonwealth’s financial architecture for their own budgetary design.[136] In particular the uniform taxation cases, ‘the high water mark Engineers’ Case techniques’ have effectively closed off major revenue options for the States.[137] This reduction of the States’ direct income tax base has coincided with changes in the States’ indirect taxation base and attitudes to gambling.

As was noted above, historically Australian regulation followed its English legal inheritance. State intervention up until the late nineteenth century was based on a combination of a policy of maximising economic growth and moral instruction. Under both policies gambling was portrayed as anti-social behaviour and successive administrations attempted to stamp it out.[138] From the 1890s to the 1960s intervention by the state was by way of regulation. This regulation, according to McMillen and Eadington, was based on a number of principles including the allowance of gambling operations that catered only to unstimulated demand.[139]

From the 1960s, the attitude and role of the state underwent a fundamental change in Australia. From that period on the States became gambling ‘entrepreneurs’ creating state monopolies (such as lotteries) and encouraging gambling as a means of revenue raising.[140] Real gambling turnover remained stagnant. State government revenue was restructured by a combination of generous Commonwealth grants during the 1970s and state governments eroding their major tax base by concessions with respect of land and payroll tax, and the abolition of estate and gift duties.[141]

With the financial cutbacks of the Hawke and Keating governments and the pressure on the States’ indirect taxation base (including excise fees) the States turned to gambling as a lucrative source of revenue. Thus Australia entered a period of the introduction of casinos and the expansion of gaming-machines into new venues.

It is at this point that the connection between the High Court and the growth of gambling is to be made. The High Court’s growing dissatisfaction with the interpretation of section 90 coincided with pressure on the States’ revenue base. While research in the area is limited,[142] it is clear that many states (as with the decision in Ha) were preparing for the demise of the franchise fee system. The increase in the States’ reliance on gambling can be seen from the late 1980s onwards. For instance in 1986–87 the States derived $1,253.709 million, by 1996– 97 this figure had increased to $3,423.331 million.[143] This equates to a 175 percent increase over the period.

7. Gambling and Public Sector Finances

State and Territory governments have a limited number of sources of income. Apart from grants from the Commonwealth the bulk of the States and Territories’ income is derived from property taxes, payroll taxes, and motor vehicle taxes. One of the growth areas in public State and Territory revenue in the last decade has been the income generated from gambling taxes. As Table 2 indicates in the case of Victoria the income has more than doubled in the period between 1990–1991 to 1997–1998. Other States such as NSW, South Australia and Queensland have experienced increases between 40 and 120 percent.

Tables 2: Income Generated from Gambling Taxes by State

State
1990–1991
1995–1996

$Millions
$Millions
NSW
828
1338
Victoria
502
1296
Queensland
236
543
South Australia
134
313
Western Australia
135
171
Tasmania
39
65

Source: ABS Catalogue No. 5506.0, 1995–1996, 1997–1998.

This movement in the increase in the income generated from gambling taxes can be seen when the taxes are seen as a percentage of the overall budget of the States and Territories. Figure 2 demonstrates those percentage increases. For example, Queensland and Victoria now derive 12.5 and 15.2 percent respectively of their total taxation from gambling taxes. These figures reflect the recent opening in 1996–97 of major casinos in Victoria and NSW.

Figure 2: Percentage of State Tax from Gambling Taxes as Percentage of Total State Taxes

Source ABS Catalogue No. 5506.0, 1997–98.

In terms of the breakdown in the gambling figure it is possible to see the growth in particular forms of gambling as a percentage of state income. The Australian Bureau of Statistics divides gambling into a number of categories: taxes on government lotteries, taxes on private lotteries, poker machine taxes, casino taxes, race betting taxes and taxes on gambling. In Figures 3 and 4, relating to Victoria and South Australia, those gambling taxes, other than casino and poker machines taxes are aggregated in the group ‘other’.

Clearly Victoria and South Australia represent extreme examples of a change in both the size and the make up of revenue from gambling. As is indicated below the introduction of new forms of gambling, (the Crown Casino in Victoria and poker machines in South Australia) have had a dramatic effect on the rate of gambling in these States.

Figure 3: Percentage Distribution of Gambling Revenue for Victoria

Source: ABS Catalogue No. 5506.0, 1995–96

Figure 4: Percentage Distribution of Gambling Revenue for South Australia

Source: ABS Catalogue No. 5506.0, 1997–98.

The contrast between franchise fee taxes and gambling taxes can be seen in Figure 5. The importance of the two taxes is clear as they made up nearly one quarter of the total tax income for the States and Territories prior to Ha.

Figure 5: Franchise and Gambling Taxes as a Percentage of Total State and Territory Government Tax Base Source ABS Catalogue No. 5506.0, 1997–98. These figures hide what is in reality a human story. The incidence of gambling is captured by the real per capita increase since 1972–3. As the Table below indicates Australians are now gambling over $730 per person per year.

Table 3: Total Real Australian Per Capita Gambling Expenditure

Year
Total ($)
1972–3
308.60
1977–8
359.18
1983–4
358.56
1988–9
423.71
1993–4
573.75
1996–7
736.32

Source: Australian Gambling Statistics 1972/3 to 1996/7, Table 243.

It is now estimated that Australian gambling expenditure is over three per cent of household disposable income.[144]

Research from overseas shows that gambling is a form of regressive taxation.[145] Its impact is generally felt by those in the lower socio-economic bracket of society. As one author stated it is tax on the ‘tired and the poor’.[146] In Australia there is now anecdotal evidence that the situation is the same. Moreover, there is concern that problem gambling has an impact in specific ethnic groups. Many of these concerns have been put before the Productivity Commission’s Inquiry into Australia’s Gambling Industries. The Commission has made a number of findings in its discussion paper.[147] In particular the Commission found that around 330,000 Australians (2.3 per cent of the adult population) have a ‘significant gambling problem’. These problem gamblers comprise 15% of regular (non-lottery) gamblers and lose on average nearly $12,000 per year, compared with $625 for other gamblers.[148] Perhaps of greater concern was the finding relating to the emotional damage faced by problem gamblers. – one in four gamblers reported divorce or separation as a result of gambling; – one in ten said they have contemplated suicide due to gambling; and – nearly half those in counselling reported losing time from work or study due to gambling in the past year. The Commission found that the prevalence of problem gambling was directly related to the degree of accessibility of gambling, particular gaming machines.

8. Conclusion

This article has argued that the majority’s decision in Ha is open to criticism on a number of grounds. Firstly, the historical evidence suggests that the framers’ agreement was that excise was used in the narrow sense: an impost on the manufacture or production of a good. The expansion in the definition of excise can, in part, be put down to the authority of Sir Owen Dixon and his interpretation of the effect of Federation on the financial situation of the States and Territories. The second argument in this article is that an underlying theme in the understanding interpretation of the section since Federation has been the financial viability of the States and Territories. Even after the definition of excise had been expanded to incorporate the exhaustive categories of a tax on goods there was a reluctance upon the part of the High Court to overrule (until Ha) the franchise fee cases.

The ramifications of this case are yet to be fully understood. The states and Territories are now more than ever, in Deakin’s memorable phrase, ‘financially bound to the chariot wheels of the central Government’. The danger in the reduction of the capacity of the States and Territories to raise income through excise duties is the pressure that it will place on them to seek out revenue streams that are regressive and socially questionable. It was Oliver Wendell Holmes Jr, who stated that: ‘[t]axes are what we pay for civilized society’.[149] It would be a strange logic if in raising taxes State and Territory governments were forced to undermine that premise.



[*] BA (Hons) (TAS), LLB (UNSW), PhD (ANU), Senior Lecturer, Law School, University of Adelaide. As well as the anonymous referees I would like to acknowledge the comments and assistance of Brian Opeskin, Wendy Riemens, Mark Rogers and Fiona Wheeler. The research from which this article has been taken was made possible by an Australian Research Council small grant.
[1] Ronan T, Strangers on the Ophir (1945) at 119.
[2] [1997] HCA 34; (1997) 189 CLR 465 (hereinafter Ha).
[3] Dennis Hotels Pty Ltd v Victoria [1960] HCA 10; (1960) 104 CLR 529 (hereinafter Dennis Hotels); Dickenson’s Arcade Pty Ltd v Tasmania (1974) 130 CLR 177; H C Sleigh Ltd v South Australia (1977) 136 CLR 475.
[4] The Australian 6 August 1997 at 2.
[5] Mitchell A, ‘Marxist approach to reform courts disaster’ The Australian Financial Review 6 August 1997 at 5.
[6] Philip Morris Ltd v Commissioner of Business Franchises (Vic) [1989] HCA 38; (1989) 167 CLR 399 at 445 (Brennan J).
[7] Deakin A, Federated Australia: Selections From Letters to the Morning Post 1900–1910 (1968) at 97. As Attorney-General, Deakin in October 1901 did venture the opinion that ‘an excise duty is upon goods manufactured or produced within a country. It is the production that is taxed – not the process of production; and if it is thought desirable to provide by law for an excise on goods already produced, there is no constitutional objection to this course.’ Opinions of the Attorney- General of the Commonwealth of Australia (1981) at 32.
[8] Walter Hammond & Associates v NSW [1997] HCA 34; (1997) 189 CLR 465.
[9] Business Franchise Licences (Tobacco) Act 1987 (NSW) (hereinafter the Act) s28.
[10] Id s29.
[11] Above n9 s30.
[12] Above n9 s39.
[13] Above n9 s41(1) (c).
[14] Above n9 s3.
[15] Above n2 at 540.
[16] [1949] HCA 67; (1949) 80 CLR 229 (hereinafter Parton).
[17] Ha above n2 at 488 citing Capital Duplicators v Australian Capital Territory [No 2] [1993] HCA 67; (1993) 178 CLR 561 at 590.
[18] [1993] HCA 67; (1993) 178 CLR 561.
[19] [1904] HCA 21; (1904) 1 CLR 497 (hereinafter Peterswald v Bartley).
[20] [1938] HCA 38; (1938) 60 CLR 263 (hereinafter Matthews).
[21] Ha above n2 at 493.
[22] Id at 495.
[23] Ibid.
[24] Above n19 at 509.
[25] Ha above n2 at 506.
[26] Id at 508.
[27] Official Record of the Debates of the Australian Federal Convention, Adelaide 1897 Vol 3 (1986) (hereinafter Debates Adelaide 1897) at 835.
[28] Mills S, Taxation in Australia (1925).
[29] Draft Federation Bill 1891, A I Clark Papers, C4/E19, University of Tasmania Archives.
[30] Kingston CC, ‘A Bill for An Act for the Union of the Australasian Colonies’ Part XII (IV) in Sir Samuel Griffith, Successive Stages of the Constitution, Dixon Library, Sydney.
[31] La Nauze J A, The Making of the Australasian Constitution (1974) at 277–8.
[32] The clause was numbered at that stage Chapter IV, clause 4.
[33] Official Record of the Debates of the Australasian Federal Convention Sydney 1891 (hereinafter Debates Sydney 1891) at 801. This move was defeated.
[34] Id at 790.
[35] Id at 801.
[36] Id at 794.
[37] Official Record of the Australasian Federal Convention Sydney 1897, vol 2 at 843 (hereinafter Debates Adelaide 1897).
[38] Id at 859.
[39] Id at 862.
[40] Debates Sydney above n33 at 1065.
[41] Ibid.
[42] Id at 1067.
[43] For a good account of the development of the meaning of excise in both England and the United States see Anderson P, The Historical Meaning and Constitutional Interpretation of ‘Taxation’, ‘Customs’ and ‘Excise’ (1982) (Hon Thesis) Adelaide.
[44] Id at 1066.
[45] [1902] USSC 78; (1902) 184 US 608.
[46] Id at 618.
[47] [1868] USSC 115; 8 Wall 123 (1869).
[48] [1885] USSC 150; 114 US 622 (1885).
[49] Above n47 at 140.
[50] Debates Sydney 1897 above n33 at 1067–8.
[51] Id at 354.
[52] Ibid.
[53] Official Record of the Debates of the Australasian Federal Convention, 3rd session, Melbourne 1898, vol 4 (1986) (hereinafter Debates Melbourne 1898) at 531. NSW 2,074,460 88.2% 263,747 11.1% 17,312 0.7% 2,355,519 Victoria 1,751,307 84.3% 301,964 14.5% 23,146 1.1% 2,076,417 SA Proper 566,849 96.2% 18,425 3.1% 4,190 0.7% 589,464 SA NT 31,291 99.8% – – 70 0.2% 31,361 WA 615,030 98.9% – – 6,775 1.1% 621,805 Tasmania 293,866 93.4% 18,111 5.6% 2,465 0.8% 314,442 QLD 1,142,318 95.7% 44,208 3.7% 7,357 0.6% 1,193,883 Total 6,475,121 90.1% 646,455 9.0% 61,315 0.8% 7,182,891
[54] Above n33 at 354.
[55] Above n37 at 1067–1068.
[56] Quick J & Garran R, The Annotated Constitution of the Australian Commonwealth (1901) at 837-8.
[57] One such account is Irving H, To Constitute a Nation: A Cultural History of Australia’s Constitution (1997).
[58] Fricke G, Judges of the High Court (1986) at 122.
[59] Dixon O, Jesting Pilate (1965) at 102.
[60] Australian Capital Television Pty Ltd v Commonwealth ([1992] HCA 45; 1992) 177 CLR 106 at 136 per Mason CJ, at 182 (Dawson J) and at 228–9 (McHugh J).
[61] Williams JM, ‘Race, Citizenship and the Formation of the Australian Constitution: Andrew Inglis Clark and the “14th Amendment”, (1996) 42 AJPH 10.
[62] Above n16 at 260.
[63] Royal Commission on the Constitution of the Commonwealth, Report of Proceedings and Minutes of Evidence (Canberra: HJ Green, Government Printer, 1927) at 779.
[64] Ibid.
[65] Ibid.
[66] Ibid.
[67] Report of the Royal Commission on the Constitution (hereinafter Report) (1929) at 259.
[68] [1926] HCA 47; (1926) 38 CLR 408 at 437.
[69] Report above n68 at 259–60.
[70] Id at 260.
[71] Above n20 at 281.
[72] Id at 286.
[73] Id at 291.
[74] Id at 292. Dixon J specifically noted ss55, 86, 90 and 93.
[75] Ibid.
[76] Id at 298.
[77] Id at 299.
[78] Id at 304.
[79] Above n16.
[80] For their part Rich & Williams JJ accepted the definition of Dixon J in Matthews, id at 252.
[81] Id at 260.
[82] [1943] AC 550.
[83] The High Court in Bolton v Madsen [1963] HCA 16; (1963) 110 CLR 264 at 271 unanimously endorsed the wider definition.
[84] Amalgamated Society of Engineers v Adelaide Steamship Co Ltd [1920] HCA 54; (1920) 28 CLR 129.
[85] Goldsworthy J, ‘Originalism in Constitutional Interpretation’ (1997) 25 FLR 1 at 35.
[86] Id at 38.
[87] For instance, Dawson D, ‘Intention and the Constitution – Whose Intent?’ (1990) 6(2) Aust Bar Rev 93; Schoff P, ‘The High Court and History: It Still Hasn’t Found(ed) What It’s Looking For’ (1994) 5(4) PLR 253; Goldsworthy, above n82; Craven G, ‘The Convention Debates – Still More Sinned Against Than Sinning’ (1998) 1 The New Federalist 67.
[88] Cole v Whitfield [1988] HCA 18; (1988) 165 CLR 360.
[89] Clark A I, Studies in Australian Constitutional Law (1901) at 21.
[90] Above n89 at 385.
[91] Above n2 at 499.
[92] See also Anderson, above n 41 at 10–12.
[93] [1937] HCA 34; (1937) 57 CLR 372.
[94] Above n15 at 263.
[95] Ibid.
[96] Dennis Hotels Pty Ltd v Victoria, above n3 Fullagar, Kitto, Taylor and Menzies JJ; Dixon CJ, McTiernan and Windeyer JJ dissenting.
[97] Ibid. Dixon CJ, McTiernan, Menzies and Windeyer JJ; Fullagar, Kitto and Taylor JJ dissenting.
[98] Id at 539.
[99] Id at 547–8.
[100] Id at 592.
[101] Id at 555.
[102] Id at 564 and 569.
[103] Id at 575.
[104] Id at 590–1.
[105] Id at 591.
[106] Above n2.
[107] Above n2.
[108] For example Barwick CJ in Dickenson’s Arcade stated that he ‘cannot confess to any great satisfaction in taking that course ie, [applying Dennis Hotels] but, in the circumstances, I am prepared on the authority of the precise decision in that case, but as I have indicated not because of any of its reasoning, to hold that the provisions with respect to the fee payable for a tobacco vendor’s licence do not impose a duty of excise.’ See above n3 at 189.
[109] In Evda Nominees Pty Ltd v Victoria (1984) 154 CLR 311 at 316 only Deane J would have allowed the argument to be presented.
[110] Above n6.
[111] Id at 438.
[112] This view was rejected by Brennan J, id at 459.
[113] Id at 439.
[114] Id at 466.
[115] Id at 473.
[116] Id at 473–4.
[117] Id at 478.
[118] Id at 484.
[119] Id at 485.
[120] Above n18.
[121] Id at 590–591.
[122] Id at 593.
[123] Id at 627.
[124] Above n2 at 499.
[125] Id at 497.
[126] Id at 504.
[127] Above n3 at 560 per Kitto J.
[128] Above n16 at 463.
[129] Above n2 at 503.
[130] Id at 504.
[131] [1989] HCA 37; (1989) 167 CLR 503.
[132] Above n2 at 504.
[133] The rescue package involved changes to the Commonwealth’s taxation schemes: Franchise Fee Windfall Tax (Collection) Act 1997 (Cth); Franchise Fee Windfall Tax (Imposition) Act 1997 (Cth); Franchise Fee Windfall Tax (Consequential Amendments) Act 1997 (Cth); Sales Tax (Customs) Alcoholic Beverages Act 1997 (Cth); Sales Tax (Excise) Alcoholic Beverages Act 1997 (Cth); Sales Tax (General) Alcoholic Beverages Act 1997 (Cth); Sales Tax Assessment Amendment Act 1997 (Cth); Excise Tariff Amendment (No 3) Act 1997 (Cth); Customs Tariff Amendment (No. 3) Act 1997 (Cth) and State Grants (General Purposes) Amendment Act 1997 (Cth).
[134] Department of Treasury and Finance, Budget Paper No.1 – Budget Overview, 1998, 4–79 to 4–80.
[135] Windeyer WJV, The Law of Wagers, Gaming and Lotteries in the Commonwealth of Australia (1929).
[136] South Australia v Commonwealth (First Uniform Tax Case) [1942] HCA 14; (1942) 65 CLR 373, Victoria v Commonwealth (Second Uniform Tax Case) [1957] HCA 54; (1957) 99 CLR 575, Victoria v Commonwealth (Federal Roads Case) [1926] HCA 48; (1926) 38 CLR 399.
[137] Sawer G, Australian Federal Politics and Law 1929–1949 (1963) at 152.
[138] McMillen J & Eadington W, ‘The Evolution of Gambling Laws in Australia’, (1986) NYL Sch J Int’l & Com. L 167 at 171.
[139] Id at 183.
[140] Smith J, Gambling Taxation in Australia (1998) at 25.
[141] Ibid.
[142] A point highlighted in the Issues Paper to the Productivity Commission’s Review of Australia’s Gambling Industries (1998) at 23.
[143] The Tasmanian Gaming Commission, Australian Gambling Statistics 1972/3 to 1996/7, Table 107.
[144] Australian Gambling Statistics 1972/3 to 1996/7, Table B.
[145] US-based work is more common. For example, Borg M, Mason PM & Shapiro SL, ‘The Incidence of Taxes on Casino Gambling: Exploiting the Tired and the Poor’ ((1991) 50(3) American J of Economics and Sociology 323; and Friedman J, Hakim S & Weinblatt J, ‘Casino Gambling as a “growth pole” Strategy and its Effect on Crime’ (1989) 29(4) Journal of Regional Science 615.
[146] Ibid.
[147] Productivity Commission, Australia’s Gambling Industries, Draft Report, (Canberra: AusInfo, 1999).
[148] Id at xii.
[149] Compania Gederal de Tabacos de Filipinus v Collector of Internal Revenue [1927] USSC 178; 275 US 87 (1927) 100. See also Smith, above n136 at 53–56.


AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.austlii.edu.au/au/journals/SydLawRw/1999/24.html