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Pape v The Commissioner of Taxation of the Commonwealth of Australia & Anor [2009] HCATrans 61 (1 April 2009)

Last Updated: 1 April 2009

[2009] HCATrans 061

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S35 of 2009

B e t w e e n -

BRYAN REGINALD PAPE

Plaintiff

and

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

First Respondent

COMMONWEALTH OF AUSTRALIA

Second Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 1 APRIL 2009, AT 10.17 AM

(Continued from 31/3/09)

FRENCH CJ: Yes, Mr Solicitor.

MR GAGELER: Your Honours, the Court will have received, I hope, two pieces of paper. One is the minute of order attaching a proposed amended special case. The amendment reflects, in paragraph 6A, the 11 per cent figure that I stated yesterday, and that is the only proposed amendment. We would – when I say “we”, the parties – would seek an order that leave be given to amend the special case in that form.

FRENCH CJ: Is that agreed?

MR GAGELER: Yes.

FRENCH CJ: Yes, you have leave to amend accordingly.

MR GAGELER: As to the other piece of paper, your Honour asked for our proposed form of reading down of section 6 in the event that it all comes down to the taxation power and we have provided your Honours with a form of words. If the Court pleases.

FRENCH CJ: Thank you. Yes, Mr Leeming.

MR LEEMING: Thank you, your Honour. On the form of words for the reading down, if it comes down to the taxation power, what Mr Gageler has provided is more elegant and more effective than what I attempted to provide orally yesterday. We embrace it.

FRENCH CJ: Thank you.

MR LEEMING: I wish to complete the submissions I was making on the appropriations power, then deal with the conventional executive power point, 61 plus 51(xxxix), which we say is insufficient, then deal with what we regard as the more attenuated formulations of executive power advanced by the Commonwealth based on nationhood and the national economy, then deal with trade and commerce and then deal with external affairs.

As for appropriations power, that is set out in writing in some little detail in our supplementary submissions. I do not wish to go back there. They do, however, refer to what we regard as a helpful article by Professor Campbell called Parliamentary Appropriations in the Adelaide Law Review. I am hoping that your Honours have a copy of that. Within that article can we invite the Court’s attention, please, to page 161 to 164, the whole of which we embrace, nor do we regard it as controversial. This article predates AAP and Brown v West. We do not see anything in those cases that overtakes what Professor Campbell here sets out. Can I emphasise please five things. First of all, immediately under the heading “Effect of appropriation” on page 161 she says:

The authority Parliament gives by appropriating public moneys is authority to spend and only authority to spend.

She makes the point about five lines down that that grant of authority does not result in the Crown being compelled to spend and, importantly, at the beginning of the last paragraph of that page she says:

An appropriation Act does not authorize the Crown to enter into binding contracts, nor does it create binding contractual obligations.

She goes on to say, and this is where this bites in this case, the appropriation – contrary to what my learned friend, Mr Gageler, submits – does not itself support section 5 and section 7 of the Tax Bonus Act. Fourthly, after discussion of the English practice on 162 she repeats a passage from Justices Isaacs and Rich in the Colonial Ammunition Case at about point 8, which reinforces the point made by your Honour Justice Gummow a couple of days ago that 81 and 83 are about the internal relations between Executive and Parliament, not about the relations between the Commonwealth and external bodies like citizens and corporations.

Lastly, at the end of this section on page 164 just above the next heading, after dealing with differently expressed reasons in early cases she concludes that:

the better view, it is submitted, is that any liability that arises –

that is to create a legal obligation to pay –

arises not under the appropriation Acts but under the exercise of powers vested in the Crown by common law or some other statute, that the appropriation Act merely permits that liability to be discharged –

and so on. Hence, in answer to your Honour Justice Hayne’s question to Mr Gageler at transcript 31, do we need to get into this area, what is the precise content and purposes of the Commonwealth, we say, no, on our case. The source of power to sustain sections 5 and 7 must be found elsewhere and so if our submission is accepted, then those points go away. It is necessary for me to deal with it in order to respond to my learned friend’s, Mr Gageler, argument and we say, as I think your Honour’s know, our Act, the Tax Bonus Act, is not an appropriation, nor does it purport to be, nor is it incidental to some appropriation. Rather, it creates freestanding rights that engage 109 and if they are valid, a different source of power must be found to sustain them.

At the end of the Commonwealth’s materials there is a certificate signed by the Governor-General reflecting a view consistent with that advanced by the Executive of the Commonwealth in this case that the Tax Bonus Act itself required to comply with section 64. That does not take the matter any higher, of course.

I turn to the executive power in its conventional articulation. There is obviously power without requiring any Commonwealth statutes for the Commonwealth Executive to spend, that is to say (a) to incur obligations – contractual, tortious; and (b) to discharge those obligations by the disbursement of funds. That power is a broad power, as we said in our written submissions as my learned friend, Mr Gageler, remarked, by reference to Professor Hearn’s work, and as your Honour Justice Gummow referred at close of business yesterday, it is informed of course – it is no narrower than the breadth of the power in section 52 as enunciated by Justice Windeyer in Worthing’s Case. It is a large and general idea although, like other large and general ideas incorporated into the Australian Constitution deriving from either English or American sources or both, it falls to be construed in our local circumstances; that is particularly when translating English ideas: federation; and in translating American ideas in the notion of continuity rather than revolution. There was no Treaty of Paris.

It is useful in analysing the executive power to adopt Justice Brennan’s threefold classification of prerogative powers, statutory powers and other or general powers. To make it very crisp, as I said yesterday, if the Commonwealth decides that there is a cape which would be an appropriate place for a lighthouse it can go and enter into a contract with the landowner to acquire that piece of land. It does not need any legislative authority to do that; it does not even need an appropriation to do that.

It needs an appropriation when the moneys are going to be paid, but it does not need any legislative authority to do that. That is amply within the executive power. By the time it pays the landowner there must be an appropriation, otherwise there is a contravention of 81 and 83 and, further – and there is no need to go to this – that exercise of executive power is capable of being regulated by statute and is regulated by statute in the form of the Financial Management and Accountability Act. There is no need to go there but sections 26 and 27 regulate that exercise of executive power.

However, that is not this case. If, as well as spending the money to acquire that land the Commonwealth wishes to create statutory rights, such as compulsive acquisition or supersede State planning laws or environmental laws that it needs to enact some legislation, the nature of the exercise of power by the Executive will change. It will no longer be the general executive power; it will be the legislative power executing that legislation, but those rights will be created and so long as a source of power can be found to do so, there is nothing standing in the way.

But there are limits on the Commonwealth Executive power, broad though it is, and that fact is not in dispute, as I understand it, having regard to my learned friend Mr Gageler’s reliance on Barton’s Case yesterday. It is broad, but there are limits. Those limits, we say, derive from the text and structure of the Constitution. Those limits, as I said yesterday, can be enforced, as Justice Mason indicated in AAP, because he regarded there was a valid appropriation, but the intended exercise of executive power went beyond what was granted to the Commonwealth. His Honour’s reasoning was it was driven by the text and structure of the Constitution. It was no part of that to run the regional council development package that was in the lengthy bundle of documents that we referred to yesterday.

The key difficulty that is confronted by the Commonwealth, and we say they do not surmount, is that they are driven because of the absence of reference in any express power in 51 to these more attenuated forms of executive power based ultimately on necessity. There are two things that are prominent in the Commonwealth submissions on this grander fall of executive power and, as we understand it, the point that is being driven is, in effect, from these considerations there should be derived a very broad formulation of executive power and that then engages 51(xxxix) to sustain the rights and obligations created by the Tax Bonus Act.

The two things that are prominent in the Commonwealth’s submissions are, one, we have acted in this way for very many years and, two, we need to control the national economy in good times as well as bad. I wish to confront both of those submissions. The first of those submissions is really developed by the Commonwealth by reference to some old legislation in footnote 26 of its submissions in-chief and money that was granted to Mrs Ulm and the National Fitness Act, the Home Deposit Assistance Act and so on.

HEYDON J: Mr Leeming, would you mind speaking up? I have trouble hearing.

MR LEEMING: I am so sorry, your Honour. There are three things wrong. First of all, we entirely reject the mode of reasoning that says we, the Executive, have acted in a particular way for a long period of time and that should in any way influence this Court’s articulation of what the Constitution requires. That simply misconceives the relationship between the Executive and the Court.

Secondly, that mode of reasoning, as your Honour Justice Heydon referred to in a question to my learned friend Mr Gageler, can only have relevance as an indicium of the development of precedence and there is no longstanding articulation of what these powers mean by this Court on which reliance could be said to have been expressed. Mr Meadows is going to develop that point a little bit further. We adopt that. Thirdly, if one examines the individual examples put forward by the Commonwealth by way of example, it is by no means obvious that those are exercises of appropriation power that are bad.

We have burdened your Honours with some – not all – of the examples that are referred to in that footnote. The first of them is Mrs Ulm’s grant – an Act of 1934 for trans-Pacific flight appropriation. Your Honours only have one page. That is all there is. It is a two-section Act. My learned friend says this is the sort of Act that will – this appropriation will be invalid if a narrow view of power is adopted. We say no. Celebrating the trans-Pacific flight plainly falls within overseas trade and commerce – that is what it is developing – and external affairs. This is a very secure exercise of power. Then there is the National Fitness Act - - -

GUMMOW J: What about Act 64 of 1934, on the same page?

MR LEEMING: Yes. It is perhaps interesting that my learned friend chose 65, not 64. Act 64 does not on its – I do not, as I stand here, know what David Charles McGrath – it is a sign of my own ignorance – did and what - - -

HAYNE J: He had been a member of the House of Representatives, so it says – “sometime a member of the House of Representatives”.

MR LEEMING: Thank you, your Honour. Then we are within the scope of the powers identified by this Court in Brown. It is quite emphatically that the emoluments paid to Members of Parliament are an important aspect of Parliament in this country.

HAYNE J: We are not quite at the doorkeeper of Holyrood House, which is a charge on the civil list, I think. But we are not very far from it.

GUMMOW J: No, we are not very far from it, and that raises this question, Mr Leeming, rather than all this minutiae. Why should not one start with the proposition that, as is indicated by the first three judges in Baxter’s Case – we are not talking about the powers of the municipal body on the Isle of Wight, we are talking about the creation of a new body politic, namely the Commonwealth. Why should it not have received all the executive capacities of the United Kingdom Executive, save insofar as it is necessary to give effect to the interests of the States under federal considerations? The States, including your State, are notably silent as to how they would deal with this present situation.

MR LEEMING: Two parts are the answer. First of all the State is not notably silent as to how it would deal with the situation and in the bundle of material the fiscal stimulus that my learned friend, Mr Gageler, says can only be implemented by the Commonwealth, that is a surprising submission having regard to the nature of fiscal stimuluses and where spending in this country happens. The co-operative federalism that is reflected in the home building grant the first part of the fiscal stimulus is administered through the states. But to answer the question of principle - - -

GUMMOW J: This is all happening within a few weeks and in large amount.

MR LEEMING: Yes, so one and a half billion dollars fiscal stimulus announced, I think, last October is being administered through the States through the top-up boost from 14 to $21,000 of the home owners’ grants. As my learned friend, Mr Gageler, properly says a lot of the fiscal stimulus is being administered “in partnership” with the States. In answer to your Honour the question of principle, yes we embrace the notion of broad executive power and obviously it is constrained by the textual - - -

GUMMOW J: There is no doubt that in the United Kingdom this would have been considered within the notion of the public service.

MR LEEMING: Yes, your Honour. So the question is – can I just go back one moment?

GUMMOW J: The question is why is that not carried forward into the Commonwealth of Australia?

MR LEEMING: There is no doubt in the United Kingdom that payment of these amounts to the seven million taxpayers would fall within the notion of public service. There is no doubt that this Court is not adjudicating on the lawfulness merely of making grants unattached to rights and obligations to people. What this Court is adjudicating is the creation by legislation of new rights and obligations. If this were a case like AAP where all that the Commonwealth were seeking to do was to invoke the executive power, then these questions would be live and large. But – and this is what concerns the States – it is the 109 engagement that happens. Rather than relying, to the extent reliance can be placed upon AAP, the Commonwealth has sought to go down the pharmaceutical - - -

GUMMOW J: What is the impact of the 109 engagement through the Bonus Act? What are these State Acts you are trembling to preserve from the knife of section 109?

MR LEEMING: As I said I am here on principle. As I said we embrace the Act and I do not point to any State Act that is inconsistent and it is most unlikely ever there would be. But, it is a very different thing conceptually, we say, for the Commonwealth, as opposed to spending to going out and buying on the free market those lighthouses, to giving the money away if it wishes to do so, to exercising legislative power. This is an exercise of legislative power that my State welcomes. But the proposition that in general this broad view of the executive power can engage 51(xxxix) is something that we strongly oppose. That is the difference and that is why I say these big – my learned friend’s were big questions if the extent of executive power does not arise. The real question is to what extent do they enable the creation of statutory rights and obligations that bite.

In Pharmaceutical Benefits itself as Mr Kirk reminds me at page 270 within 71 CLR Justice Dixon at page 270 says at lines 5 and following - I am dealing with two points here, first of all that 81 does not sustain:

appropriation of money is the consequence of the plan –

or outside of the incidental power. But there is further reference to how the approach this Court adopts in translating from other places the same language. It is not simply incidental to spending, we say, to create rights and duties.

To be perfectly candid, the best argument against me is that the right and duty that I have emphasised so much in section 5 and section 7 are not so very much different from the payments themselves. There is nothing much extra by way of regulation, in the same way that there were in some aspects of the Pharmaceutical Benefits Act.

GUMMOW J: It gives a right to sue.

MR LEEMING: Quite, and that makes a difference, we say, and that is the black and white line that your Honour Justice Hayne referred to on the first day, and that is what made a difference. It makes a difference in principle and it made a difference in the reasoning of Sir John Latham. Does it make a difference between being given the right to pharmaceuticals and having the right to sue for them? Yes, it does, we say. It matters because these things are seen through 109. That is the real difference in this case.

GUMMOW J: I do not think it is being put against you that 51(xxxix), in conjunction with section 61, would permit the establishment of the structure that was challenged in the Pharmaceutical Benefits Case.

MR LEEMING: My learned friend does not need to do that, but he does put against me - - -

GUMMOW J: You apprehend that that could happen.

MR LEEMING: Yes, to be candid about it, and the thin edge of the wedge, however one wants - - -

GUMMOW J: That would provide the threat you see through the use of section 109.

MR LEEMING: Because the difference between executive power is that it is non-coercive.

GUMMOW J: The answer is perhaps one does not have to go that far in this case in order to sustain the validity of the Tax Bonus Act.

MR LEEMING: The question that does not arise in this case - - -

GUMMOW J: One wonders what would have happened if the Court deciding the Pharmaceutical Benefits Case were deciding the Tax Bonus Act.

MR LEEMING: Yes.

GUMMOW J: They would not have been faced with the monster that seemed to be looming up in the Pharmaceutical Benefits Case.

MR LEEMING: Yes.

HAYNE J: Which invites attention to the distinction between payments and activities.

MR LEEMING: Yes, indeed.

HAYNE J: What do you understand that distinction to be? How do you articulate it?

MR LEEMING: Payments, or more precisely for constitutional purposes, drawings, are simply the transfer of money pursuant to some legal or equitable obligation. Activities are things that the Executive can engage in, thereby picking up State and common law that applies in the area of those activities. Please forgive me if I am not answering your Honour’s question. The distinction that matters, for my argument, is the distinction between participating and then creating new rights and obligations that inform those activities or those payments. I am not sure if I fully apprehended the thrust of your Honour’s question, I am sorry.

HAYNE J: At the moment your argument, as I apprehend it, points towards drawing a distinction between cases in which 109 might be engaged – see Pharmaceutical Benefits and cases in which 109 would not be engaged.

MR LEEMING: Yes, your Honour.

HAYNE J: What I invite attention to is whether that distinction can be maintained where the hypothesis for consideration is that there is a law made under 51(xxxix). Leave aside the case where there is no law, there is simply a payment out.

MR LEEMING: Yes.

HAYNE J: If there is a law, what is the basis upon which you point to or point towards a distinction founded in 109 or its possible application?

MR LEEMING: The Commonwealth is a limited creature; its legislative power is limited. The fact that the law is enacted pursuant to 51(xxxix) obviously makes no difference for 109 purposes. It therefore follows there is a world of difference at the constitutional text level between - - -

GUMMOW J: You would have to say, looking at 51(xxxix), it would have to be a matter incidental to the execution of the power to draw.

MR LEEMING: Yes, that being a power vested by this Constitution in the Parliament. It works textually, absolutely.

GUMMOW J: The question is how far does the notion of a matter incidental to the drawing go, I suppose.

MR LEEMING: Quite so, and then we say that in terms depends upon the extent of the executive power. If I am right and this Act is authorised under 51(ii), no difficulty at all.

GUMMOW J: I am sorry to interrupt you, it is hard to see how the pharmaceutical benefits legislation could have been treated as a matter incidental to the execution of the drawing, that whole structure that was being erected to control the profession.

MR LEEMING: Agreed, hence outcome, even though that was the only basis for sensible reasons on which the case was put.

HAYNE J: And thus is the spending to which you refer simply – is it more than the drawing from the CRF, the drawing from the Treasury? Does it include the application to an end? Does it include making the payment to an individual, making the payment to an individual on condition, making the payment on condition to an individual breach of which will constitute a contravention of Commonwealth law? All three are different levels of debate and I just invite your attention to the validity of the distinctions which seem to underpin your argument. Validity in the sense of, are they maintainable? Yes, I understand the words of distinction, but can they be maintained and given effect to?

MR LEEMING: We say they can. We concede, of course, that there is almost no regulation in this legislation, as opposed to pharmaceutical benefits. We concede, of course, that the Commonwealth could very readily have imposed some conditions and carrots and sticks in the Tax Bonus Act to achieve some other end and then the point would become more acute. This case is a difficult one in this respect of it because of the close proximity to the mere spending and what is conferred by the Act.

HAYNE J: But if the point is one about structural integrity, one cannot confine attention to the particular Act and observe it is no more than a spending. One has to look beyond.

MR LEEMING: I embrace that, with respect. That is the point. It is not this case and I am not here to oppose the notion that the Commonwealth cannot spend this money, that is, give away this money, if it be contrary to everything that we have said, as Mr Pape says, a gift. That is pure executive power. That is not coercive. That is not creating a new right upon which suit can be brought.

My answer to your Honour Justice Hayne’s question is that the line starts and stops once you get a law and it does not matter whether it is a richly encrusted series of rights and criminal obligations, as well as civil obligations, like the Pharmaceutical Benefits Act. It is anything that is a law and thereby engages 109 and that is driven by the relationship between the competing legislative powers of State and federal polities on the one hand and mere executive power which is subservient to both. One cannot, I say, elevate mere spending an incident of executive power through the gateway of 51(xxxix) so as to engage 109. In other words, it does not matter that this is a much less conditioned regulatory regime than pharmaceutical benefits. Executive power is limited by what is authorised - - -

GUMMOW J: You say so as to engage 109?

MR LEEMING: I am sorry, yes. Executive power is limited. It must be so. It is conceded that is so. I wish to deal with the two ways now in which my learned friend, Mr Gageler, says it is not limited.

HAYNE J: Before you do, does the expression “engage section 109” mean anything more in this context than pointing to the existence of federal law, that is, are you saying that this distinction depends upon whether or not the States have in fact legislated, could legislated or the like?

MR LEEMING: Yes, but only just.

HAYNE J: There is an answer that requires a little explanation.

MR LEEMING: It is not merely the fact that there is a law, your Honour. It is the fact that there is a law which is capable of colliding with a State law and it is hard to think of – I can imagine merely declaratory laws such as, by the way, one of the ones that my learned friend relies upon, the Charter of Budget Honesty Act which expressly is part of his new formulation for why there is this executive power to manage the national economy in good times or bad. That, with respect, is a most unlikely foundation for such an implication, not merely because it is merely a law but also because, as section 3(2) says, as he said fairly in-chief:

Nothing in the Charter of Budget Honesty creates rights or duties that are enforceable in judicial or other proceedings.

A mere aspirational declaratory law that does not give rise to any legal rights or obligations is not going to engage 109. That is the content provided in my answer to your Honour Justice Hayne’s question.

GUMMOW J: When you talk about engaging section 109, I think that is perhaps an artifice to obscure a reinvocation to Barger’s Case as regards section 51(xxxix)

MR LEEMING: I am not seeking to do that and I am not seeking to be artifice. I am referring not to some residual reserve powers that the States have but to the fact that this Constitution allocates legislative capacity in a way set out in 106 to 109. At its heart what one has to do when translating these notions developed in non-federal places to this federal place is to accommodate executive power split between different bodies politic and legislative power also split and we say the accommodation that happens during that translation from unitary to federal system is one where executive power continues to be subservient to legislative power irrespective of whether the source of the legislative power is State or Commonwealth. What my learned friends are wishing to do - - -

GUMMOW J: That seems to be the crux of your submission, I think.

MR LEEMING: That is and I am grateful for the interchanges which have helped me develop it, and that is what cannot be done.

FRENCH CJ: This all operates on the premise that the exercise of executive power with which we are concerned cannot be seen to fall within the subject matter area of one of the heads of power in section 51.

MR LEEMING: Quite so, yes. Thank you, your Honour. All of this proceeds on the basis your Honours are against me, but this is all authorised by 51(ii). My learned friend puts it as a freestanding argument. It is independent of all of the other heads of power on which he relies.

FRENCH CJ: The 51(ii) argument, you may not want to deal with this now, but is that answered entirely by the argument as to the characterisation of the Tax Bonus Act or can one look at the activity of the Executive in relation to the factual materials that we have seen about the international concerns in which obviously Australia has participated at an executive level to the activity of the Executive as falling within that area of concern and then look back at the Tax Bonus Act as an exercise of incidental power?

MR LEEMING: Yes, whether or not the Tax Bonus Act is authorised by section 51(ii) depends upon its characterisation, but informed contextually of course and many of the materials upon which my learned friend relies fall within the broader approach to context that is adopted in this country quite properly. Also, given that no longer merely do we look at the legal operation, but also its practical operation, something which is I think - there is no dispute any more, one looks at consequences including such evidences there is – limited we say as it is before this Court – as to practical operation of this legislation.

Just to complete what I said about the first phase of this emergency – the States and Commonwealth co-operatively injecting fiscal stimulus – we have given your Honours the Commonwealth materials and to save time I shall not go to them. It is sufficient if I can point you to the First Home Owner Grant Act 2000 (NSW) amended late last year in urgent circumstances. It creates a right to receipt of money if you are an eligible first home owner and in section 18 of that Act one will see a note, which is useful and then the new section 18A and following dealing with the events of 14 October last year, whereby a very substantial amount of buffer funds – one and a half billion – were increased and were made available through section 96 grants to the States as a fiscal stimulus in accordance with this regime. This itself reflects an agreement which is a - - -

GUMMOW J: But there is no suggestion the States can achieve any of this through their own resources. That is the point I was putting to you.

MR LEEMING: We do not disagree. That is the consequence of.....fiscal imbalance. But my learned friend says there must be power in the Commonwealth and your Honours should accept, he says, as something which is so obvious that one does not need evidence that, relying upon a closing clause in Justice Mason’s passage that your Honour Justice Crennan has referred to, there is no other way, including through section 96 grants, to deal with this emergency and therefore there is power and we oppose that submission. There is no evidence for it and it is at least in part falsified. We have also given your Honours - - -

GUMMOW J: Is there legislation in all the other States matching this statute?

MR LEEMING: Yes, and there is an executive agreement which I can give your Honour a reference to. It is found as an annexure to one of the A New Tax System Acts. It is A New Tax System (Commonwealth-State Financial Arrangements) Act 1999. Annexed to that Act is the agreement. We will provide copies to the Court as soon as we can. It is part of the GST intergovernmental agreements. One of the quid pro quos was the Commonwealth would fund the first say $7,000 first home owners’ scheme, but it was to be administered by the States, through section 96 grants. Some $7 billion has been handed out through that since its inception and very recently it has been boosted as a result of the crisis. It is co-operative federalism in action.

BELL J: Mr Leeming, one understands that there are a package of measures that call upon co-operative federal/State relations, including the New South Wales first home owners legislation and the like, but the inference that we are being asked to draw is that in relation to a particular measure, which was the ability to put however many billion it might be into the pockets of Australian citizens in a period between 9 February and, say, 2 April, practically required a measure of this character and could not be done through section 96.

MR LEEMING: Yes. Candidly, we say absurd. There is absolutely no evidence before this Court that this way and this is the only way that it could be done. If there were evidence available with all the resources the Commonwealth is bringing to bear on this litigation it would, one would think, have been easy for such evidence to have been adduced.

BELL J: You are right there is no evidence. It simply seems to me to point to other forms of stimulating the economy over the long term really does not assist your argument. I mean you are left with a no-evidence argument, but - - -

MR LEEMING: I do accept that, your Honour, but my learned friend’s argument on this limb of the case is based upon necessity and no other way, and there is no evidence supporting that. It is unlikely, we say, inherently for - since two months now - it to be impossible for these rather small amounts of money to be distributed in the manner prescribed by the Commonwealth. Why is that impossible? I am an intervener. We do not put any evidence on; we cannot. But it is not something this Court would accept, we say, from the Bar table. In support of that, your Honour can have regard to the fact that pretty rapidly, since 14 October last year, all of the States were able to amend their legislation to administer, admittedly, a pre-existing scheme.

We have given your Honours the Commonwealth appropriation legislation and a useful document which is extrinsic, which your Honours may, if you are like me, not have seen before – something called Portfolio Supplementary Estimates Statements - expressly, that is something the Court can have regard to under 15AB. Your Honours may have seen these things in Combet, my learned junior says. That makes good what I have said about the boost and also makes good what I said about 15AB.

Can I turn to national economy. This is my learned friend’s “in good times or bad” proposition. For example, at transcript page 73 the Commonwealth executive power under section 61 extends to the management of the national economy and necessarily and therefore that can engage, in the sense I have indicated, section 51(xxxix). Part of his argument is that Australia should be like other countries at the Commonwealth level and have all the powers it needs or wants.

Germany does not have all of the powers that Australia has. Not all countries have the same constitutional documents and we have a Federal Executive that has fewer powers than any Federal Executive under a unitary State. That argument does not go anywhere. It relies upon two Acts. I have already said what I want to say about the Charter of Budget Honesty Act, an Act that gives rise to no obligations at all and is confined to self-regulation in an unenforceable way.

He relies upon also the Reserve Bank Act supported under the expressly qualified banking power in the Constitution. There is a bit of omission in the historical tables from the expressly co-operative approach that the Reserve Bank was forced to adopt while there were substantial State banks participating in the national economy. He has taken you to the definition of “fiscal policy” in some Dictionary of Economics, tab 12 of - - -

GUMMOW J: What is the head of power that supports the Reserve Bank Act?

MR LEEMING: The banking plus currency.

GUMMOW J: It applies to State banking to some extent, does it not?

MR LEEMING: Yes.

GUMMOW J: The activities of the Reserve Bank.

MR LEEMING: I say this from the Bar table, my understanding is that in terms of prudential regulation that was done co-operatively while there were State Acts in operation. Fiscal policy, which is said to be an important part of a national economy, when you are a State and your spending is much greater than your revenue is something that States do an awful lot. It is not a basis to assert the existence of some broad executive power.

To say, as is said in paragraph 23 of the corrected version of the Commonwealth’s submissions, that responsibility for the fiscal management of a national economy – if “fiscal” means, as its definition says, government spending, there is a slide that is going on in the proposition. Government spending is something that States do an awful lot of.

Your Honours, it does make sense constitutionally to speak of a national economy in some sense. Section 92 makes it especially relevant, as this Court said in Betfair, to speak of a national economy and area within which the amalgam of State and Commonwealth laws of certain character do not apply. Therefore, it makes sense not to articulate, in the context of section 92, separate State areas of economic management. But that does not assist, we say, at all the use of national economy that is being invoked by my learned friend in this case. He says it supports executive power.

This is merely another argument of constitutional implication. It is expressly an argument based on implication. He needs to find it sourced in the text or structure of the Constitution, and the text or structure of the Constitution reflects something quite different; a careful balancing of legislative powers between Commonwealth and States. This argument overrides it.

FRENCH CJ: Those are questions where the concept of the national economy implies some inference of a factual character about the inescapable interdependence of economic activity all around the country. It might not be that difficult when you have a population the size of New York State.

MR LEEMING: We say it makes sense to speak of a State economy. It makes sense to speak of a national economy. In some contexts it makes sense to speak of an Asia/Pacific economy or a world economy. They are words, however, useful in some contexts - - -

FRENCH CJ: A bit like market, I suppose, metaphors to aid analysis.

MR LEEMING: That is right. They are conclusions at a high level which summarise a lot of precise activities engaged in by participants. They refer by way of summary to an absence of meaningful delineation. Hence, in terms of section 92, it does make sense. But they do not support by implication from the textual structure of the Constitution a power – and this is the point Justice Barwick made in turn – this, as your Honours know, in AAP at page 362 by reference to national economy accepting at its full value as he did, and as an experienced parliamentarian, conscious of the needs of the Commonwealth Executive. In the middle paragraph on page 362 he says, jumping in eight lines down:

There is but one economy of the country, not six: it could not be denied that the economy of the nation is of national concern. But no specific power . . . The national nature of the subject matter, the national economy, cannot bring it as a subject matter within Commonwealth power.

His Honour there is talking about exactly the same species of Commonwealth power – executive power – that my learned friend, Mr Gageler, is relying upon.

To move from the national economy to nationhood, we adopt what has been said orally from South Australia as to nationhood. It does not improve the position of the Commonwealth. Essentially, nationhood power should be seen as a species of executive power and for all the reasons that both my learned friend, the Solicitor-General for South Australia, and I have already said, that does not assist him either.

Turning to trade and commerce there are two key problems with the submission, first of all on the facts. My learned friend, Mr Gageler, says, I think, the most precise it gets in the material before your Honours is at special case book, page 45, down the bottom of page 45 – the numbering at the top:

In total, the Plan will provide a boost to the economy of around ½ per cent of GDP in 2008-09 and around ¾ to 1 per cent of GDP in 2009-10.

“The Plan” is the plan that is referred to on page 41 - the “$42 billion Nation Building and Jobs Plan”, of which a relatively small component is the $7 billion-odd the subject of the Act in subject here, rather less than a six. The numbers are very large, but first of all it is not the case that the payments the subject of these proceedings will provide anything like the boost that is there set out.

More importantly, there is no evidence at all of the extent to which this very substantial payment, but small component of an even larger plan, will or will not contribute to those boosts to the economy and when. Your Honours, I think, are able to infer that the modelling suggests that this boost will be short term and so most of it will be in the increasing GDP in this financial year, but there is simply no evidence of that.

He says that there will be a significant or substantial boost to interstate or international trade and commerce by reason of the payments under the Tax Bonus Act. That submission should be rejected because it is against the settled authority of this Court, as flagged in our written submissions, that the Commonwealth has not sought leave to reopen. The proposition is supported by what Justice Murphy said in the Port Headland Case. It is Attorney-General (WA) v Australian National Airlines Commission [1976] HCA 66; 138 CLR 492.

I may have overstated it in the Commonwealth’s written submissions in-chief. They flagged the possibility that they would seek to reopen this decision and others if necessary, but that has not been taken anywhere further and we say, yes, it is necessary. At page 502 conventionally is reproduced the authorities in this Court. True it is that trade and commerce, limited in the way it is under 51(i), has produced a lot of fine distinctions, some of which are debated and criticised but, nonetheless, the settled authority is, those distinctions need to be respected when articulating the scope of power. At 502 at about point 7 Justice Gibbs says, four lines down in the last paragraph:

It has been held again and again – and in my respectful opinion, correctly held – that s 51(i) recognizes a distinction between interstate trade on the one hand and the domestic trade of the States on the other, and that this distinction must be maintained however much interdependence may now exist between those two divisions –

There is a reference to - - -

GUMMOW J: This is all very exciting but what do you say about commingling?

MR LEEMING: The blunt assault propounded by the Commonwealth is forget about the fact that this Act observes no distinction at all between trade among the States and intrastate trade and that is enough to repel it, in my submission, and I, like all those who have preceded me, have jumped straight to the pointy end. So that a submission that proceeds on the basis that you can ignore the distinction, whatever its content be, ought be rejected unless an application formally be made to reopen these line of cases. Your Honours, at page 509 the analysis of Justice Stephen is to the same effect. Can I draw your Honours’ attention at 509 to the middle of the page by reference to Wragg’s Case again.

GUMMOW J: It is all in an age before anyone thought about electronic commerce, for example.

MR LEEMING: Yes, your Honour. As I said, I am not here to say there is no scope at some stage for seeking to reopen these old distinctions, and they have been the subject of criticism, but this is not the case to do it.

FRENCH CJ: The distinction has to have something to operate on. If the distinction has gone as a factual matter because of things like electronic trade and commerce, is there a revisiting of doctrine in saying that these activities are effectively indistinguishable at some level?

MR LEEMING: Your Honour, that, we say, is not this case. If all that be true, and I am not here to say it is not unarguable, then there is an attempt in this case, in a way that has not been articulated in any careful or full way or orally at all – and I am not critical of that fact – of a very substantial reworking of an enormous body of work which is not free from complexities and aspects that are unsatisfactory. In a case like this, where an urgent decision is sought from this Court by the moving party, the Commonwealth, which has expanded this case – I am not being critical of it for doing so – of all of these heads of power this is a very unlikely vehicle for this Court, on the run, as it were, revisiting those decisions without full and proper argument on them. That is why we flagged this in our written submissions and it was not taken any further in the corrected submissions in reply.

Just before the Court returns to that decision, can I draw your Honours’ attention on reading down to the approach of Sir Anthony Mason, who took a different view on the territories power, but at the bottom of page 524, unlike the majority of the Court, expressly did not determine the extent to which the trade and commerce power extended to the intra-Western Australian flights because he took the view that it was severable. I simply give the Court that reference because the same approach is invited by Mr Gageler and me in relation to tax – the bottom of page 524.

HEYDON J: What reference was that?

MR LEEMING: Page 524 within 138 CLR:

There is then a question whether this application exceeds the inter-State trade and commerce power. It is not a question which I find it necessary to discuss because it is . . . severable.

We embrace that approach in relation to tax and that is a conventional approach.

Lastly, external affairs – there are two aspects to this – geographical externality and international comity. The operation of the Tax Bonus Act is to create a right and an obligation in Australia. The effect of that, the intended effect, is to boost the Australian economy. The only connection with any external affair is a causal one that this is being driven by something which has been happening throughout the world. That does not make it a law with respect to external affairs.

The second way in which the Commonwealth puts the case relies upon the documents that are annexed in the special case book and particularly - I think my learned friend says this is as specific as it gets - the actions set out at 107 in the special case annexure B, and there are there those six bullet points in the declaration by G-20 leaders made last November.

All of those bullet points are in the same category in terms of activating or engaging section 51(xxix). The first of them:

Continue our vigorous efforts and take whatever further actions are necessary to stabilise the financial system.

That is a most unlikely, waffly or aspirational statement to engage Commonwealth legislative power. “Further actions as necessary”, the fact that 20 people have jointly agreed to this communiqué, does that engage 51(xxix)? We say, no. Secondly, as your Honour Justice Heydon pointed out, the third bullet point, the one on which reliance is placed, is itself qualified and is the subject of debate and is exactly the sort of qualified proposition that is forged by consensus or agreement but commits to nothing, because different views quite reasonably can be taken of what is sufficient to stimulate domestic demand to rapid effect as appropriate, and what is necessary to maintain fiscal sustainability. There is a lively debate about all of that. Again, that is in the same aspirational pigeon hole as this Court referred to in the Industrial Relations Act Case.

The only other thing I wish to say is that to the extent that reliance is then placed upon recommendations from other bodies, employees of the IMF and so on, it was said by my learned friend, Mr Gageler, at transcript page 86 yesterday afternoon that this Court had endorsed the approach that permitted not merely treaty obligations but recommendations to enliven external affairs legislative power. That was done by reference to what was said at page 483 in the Industrial Relations Act Case 187 CLR 416 by reference to what Justices Evatt and McTiernan had said in Burgess’ Case. We read this Court’s decision quite differently. We read this Court’s decision as expressly saying we are not - - -

GUMMOW J: Which page is this?

MR LEEMING: Page 483 in 187 CLR 416 at about point 7 contains the qualified statement in Burgess’ Case that the Parliament may well be deemed competent to legislate for the carrying out of recommendations. I think my learned friend said that was applied in this case. We say, no. If one goes to page 509, a judgment of five members of this Court, the middle paragraph commencing at point 4 going to about point 6 that commences “The section refers separately”, that is dealing with this point. The conclusion, in my respectful submission, plainly reads that whether the recommendations themselves – this is recommendations subsequent to a treaty obligation in this Court and it was not necessary to decide – but the Court is saying in terms the recommendations of themselves as supplying a basis for the exercise of section 51(xxix) power is not decided in this case.

GUMMOW J: Yes, that is right. That is as I understand it.

MR LEEMING: Of course, there are recommendations and recommendations.

GUMMOW J: It is a capital R recommendation. That is the point.

MR LEEMING: Exactly. After a treaty has been enacted, after international law obligations have come into existence. We have the opposite here. We do not have recommendations. We have noted some comments from people absent any international law obligation.

It is certainly one thing to say where there are international law obligations and an appropriate body suggests “Here is one thing, or a series of measures States with those obligations can do to implement them” they might be given some deference, but that is something that has not yet been determined by this Court. It does not need to be determined here because we are a world away from that. What drives the treaty aspect of external affairs legislative power, of course, is international obligation, and there is none of that in this case.

I referred to the New Tax System (Commonwealth-State Financial Arrangements) Act 1999 which has the schedule with intergovernmental agreement within it. Within the schedule appendix D is the first home owner’s scheme. I now have copies, can I hand them to your Honours? I have nine copies here. Your Honours, those are the submissions I would wish to make, unless there is something further to add.

FRENCH CJ: Thank you, Mr Leeming. Solicitor for Western Australia.

MR MEADOWS: May it please the Court. I will not detain your Honours for very long. We, of course, would wish to rely on what we have said in our written submissions and I wish to make three points: (1) in relation to the taxation power; (2) in relation to the power of appropriation in sections 81; and (3) in relation to the external affairs power.

So far as the taxation power is concerned, we submit that this legislation can be supported under that power on the basis that a law which effects what is, in substance, a refund of taxation is just as much a law with respect to taxation as a law which imposes the tax which is being refunded. Like New South Wales, we also agree that the proposed reading down which has been formulated by the Commonwealth would suffice to bring the Act entirely within power and also in a way which is envisaged by section 15A of the Acts Interpretation Act.

With respect to the power of appropriation, Western Australia adopts what has been said by the Attorney-General for New South Wales, both in its written submissions and in its oral submissions to this Court today. There is one matter to which I wish to draw attention and that is something that is covered in our supplementary submissions in response to the questions which were addressed to the parties and interveners by the Court.

This is in relation to the use of the legislative history of section 81 in terms of assisting in its interpretation and, in particular, its current interpretation. To begin with I would note that in Wong v The Commonwealth [2009] HCA 3; 83 ALJR 271 a number of members of this Court referred to the legislative history of section 51(xxiiiA) as providing assistance in both the interpretation of the section and understanding the context in which the section was enacted. In our submission, it is also permissible in construing the meaning of section 81 to have regard to that legislative history, particularly as the referendum under section 128 and the enactment of the Constitution Alteration (Social Services) Act 1946 were both successful.

Section 51(xxiiiA) was, of course, enacted and approved at a referendum to overcome the perceived effect of the decision in the Pharmaceutical Benefits Case. We wish to refer to the second reading speech for the bill for that Act by the Attorney-General and Minister for External Affairs, Dr Evatt. We have, I think, made available to the Court copies of that second reading speech. In our written submissions in paragraph 8 we refer to what Dr Evatt said at page 647 of the House of Representatives Hansard of 27 March 1946.

FRENCH CJ: This is in your supplementary, Mr Meadows?

MR MEADOWS: It is, your Honour. I will not read that passage, but I will ask your Honours to look at the first column on page 647 of the Hansard at the bottom of the page:

For many years there have been two schools of legal thought on the meaning, in this section, of the words “the purposes of the Commonwealth”. The wider view was that any purpose for which the Parliament chose to make an appropriation of money thereby became a “purpose of the Commonwealth”. On this view, there were no limits to the purposes for which the Parliament could authorize the expenditure of money. Another, and narrower, view was that “the purposes of the Commonwealth” in section 81 must be purposes indicated elsewhere in the Constitution as coming within the Commonwealth’s legislative, executive and judicial powers. The Parliament, as I have said, has consistently acted on the wider view of its appropriation power.

He then goes on to discuss the Pharmaceutical Benefits Act Case, and at about point 6 on the page he says:

Without going into technical details of the reasons given by the various justices, it may be stated that a majority of the court clearly rejected what I have called the wider view of the meaning of the words “the purposes of the Commonwealth” in section 81 of the Constitution. This decision throws serious doubt on the validity of a number of acts –

et cetera. On the next page there is a rather illuminating table setting out in summary form the various opinions from a number of legal luminaries of the day about the validity of certain social services legislation. Then about points 6 to 7 in the first column he goes on to say:

After considering these legal opinions and those furnished by its own advisers, the Government has decided that the only amendment to the Constitution which is urgently necessary as a result of the High Court’s decision is an amendment to authorize the continuance of acts providing benefits in the nature of social services, and to authorize the Parliament in the future to confer benefits of a similar character. That is the object of this bill. I emphasise that the bill does not seek to extend the appropriation power in any other respect. The proposed alteration embodied in the bill is, therefore, limited to benefits of a social service character and, in the main, to benefits of a type provided for by legislation already on the statute-book.

Now, what we say can be derived from this is that section 23A is not a provision which provides legislative authority for payments that are simply in the nature of a handout. It is confined to benefits of a social service nature. So it expanded the circumstances in which an appropriation could be authorised under section 81, but it did not expand the scope of section 81, and certainly not in a way which would permit the authorisation of a payment in the nature of the tax bonus.

This, of course, puts something of a lie to the assertion that has been made by the Commonwealth that the Commonwealth has taken the wider view of the appropriation power throughout history. It is clear enough from this that at that time the Commonwealth was forced to take the narrower view and to seek an amendment to the Constitution in order to sustain certain social services legislation and future legislation of that kind.

May I now turn to the final point that I wish to make and it reflects largely what my learned friend, Mr Leeming, has said in relation to the external affairs power and I would point to what we have said in our primary submissions in paragraphs 6 to 10, which we would suggest reflects the accepted doctrine of the Court in relation to the ability to implement international obligations entered into by Australia under treaties to which it is a party.

of the loose documents that has been provided. Admittedly, it was provided before the economic circumstances which now prevail, but I just wish to note that the G-20 is described as “an informal forum” of a number of nations which has certain objectives, but certainly, we would submit, its deliberations do not result in the creation of obligations which would be regarded as obligations under international law.

So far as the International Monetary Fund is concerned, there is, of course, a treaty in relation to it and that is to be found at page 95 of the defendant’s materials. If one examines the treaty – and I note that Australia is a party to it – there is nothing in there about what the nation states that a party to that treaty must or should do in relation to any recommendations.

So far as the OECD is concerned, again there is a treaty which is to be found at page 149. In respect of obligations, again Australia is a party, under Article 5 at page 151 it is provided:

In order to achieve its aims, the Organisation may:

(a) take decisions which, except as otherwise provided, shall be binding on all the Members;

(b) make recommendations to Members; and

There is no suggestion that a decision has been taken which is binding on the members. If there are recommendations, there is no binding effect of them in respect of an international obligation. In our submission, while all of these things have been said and done, none of them create an obligation which is sufficient to enliven the external affairs power. If it please the Court.

FRENCH CJ: Thank you, Mr Solicitor. Yes, Mr Solicitor.

MR GAGELER: I have discussed this with Mr Pape. Would your Honours allow me to say a couple of things in response to Mr Leeming before Mr Pape speaks?

FRENCH CJ: Yes.

MR GAGELER: It really is only a couple of things. I am being very restrained. There is just one factual thing and two legal things. The factual thing is, so far as the modelling of the impact of the fiscal stimulus is concerned, at page 47 of the special case book at line 21 the Treasury modelling is of an expected boost to GDP growth of about ½ per cent in 2008-09 and the breakdown of the package can be seen at page 49 where there is a table which shows the key components of the Nation Building and Jobs Plan. One can see there is a column within that table for 2008-09. Under the heading “Supporting jobs now” there is a figure for the “Tax Bonus for Working Australians” in 2008-09. When you look at that figure and compare it with the total stimulus package what you see is that the tax bonus is about 6.9 billion of a total of 12.7 billion in 2008-09. That is the factual point.

The important thing is that the obligation must be one which is an obligation under international law. If one looks at the documents on which the Commonwealth relies, one of the principal bases upon which it proceeds is the resolutions or agreements reached by the G-20. Among the materials provided by the Commonwealth is a brochure relating to the G-20 and it is described as being “About G-20”. I am not sure where that is but it is one of the loose documents that has been provided. Admittedly, it was provided before the economic circumstances which now prevail, but I just wish to note that the G-20 is described as “an informal forum” of a number of nations which has certain objectives, but certainly, we would submit, its deliberations do not result in the creation of obligations which would be regarded as obligations under international law.

So far as the OECD is concerned, again there is a treaty which is to be found at page 149. In respect of obligations, again Australia is a party, under Article 5 at page 151 it is provided:

In order to achieve its aims, the Organisation may:

(a) take decisions which, except as otherwise provided, shall be binding on all the Members;

(b) make recommendations to Members; and

of these things have been said and done, none of them create an obligation which is sufficient to enliven the external affairs power. If it please the Court.

FRENCH CJ: Thank you, Mr Solicitor. Yes, Mr Solicitor.

MR GAGELER: I have discussed this with Mr Pape. Would your Honours allow me to say a couple of things in response to Mr Leeming before Mr Pape speaks?

FRENCH CJ: Yes.

The two legal points come down to this. As I heard Mr Leeming’s argument this morning, the State of New South Wales has no difficulty at all with the Commonwealth paying money to citizens. The problem is with the creation of a right of a citizen to receive the payment. As I heard his argument, the only complaint that he makes is with the creation of a private right, he says through section 5 of the Tax Bonus Act, or perhaps through section 5 in combination with section 7.

For the reasons I have advanced somewhat elaborately in-chief, it does not matter if section 5 and section 7 alone or in combination create a private right. It is still incidental. But if it does matter, do not read it that way. As I have said in- chief, as a matter of construction in the light of Peverill’s Case and the cases referred to in Peverill’s Case, the preferable construction, independent of any constitutional consideration, is to read the Act as imposing a duty on the Commissioner, not as creating a private right. Assume that is not right just simply as a matter of construction unaided by any constitutional considerations, if reading it as creating a private right would create a constitutional difficulty, read it down. It is perfectly permissible to do so; indeed required by section 15A of the Acts Interpretation Act.

The only other thing I wanted to say is this. It may not matter, probably does not matter for the resolution of this case but it may matter more significantly in the broader scheme of things. I said in the transcript at line 1357 on the first day - - -

GUMMOW J: I am sorry. Which line?

MR GAGELER: Line 1357 at page 31 of the transcript on the first day. If your Honours are looking at it, your Honour Justice Gummow said to me:

There is a dispute between you and New South Wales, I think, as to respective parts played in the appropriation of the Bonus Act and the Administration Act, whether there is a combination or there is not a combination.

I said:

Yes. It is probably not necessary for any constitutional purpose to resolve that dispute -

Now, having heard Mr Leeming, it may not be necessary for the purposes of this case to resolve that dispute, but I would not like it to be thought that it is not constitutionally significant. We say that it is only when section 16 of the Taxation Administration Act is read with section 7 of the Tax Bonus Act that one finds, identified for constitutional purposes, the purpose of the appropriation. We link that submission to the constitutional structure and to the high constitutional purpose of that constitutional structure as identified in Combet at paragraph 160. I took your Honours to it. But basically it is all about parliamentary guardianship of the finances.

We make two points. One is although the purpose of an appropriation need not be particularly specifically identified by statute, the extent of the identification of the purpose must go to the point of allowing the Treasurer, the Auditor-General, and ultimately the Parliament to be able to tell whether any particular amount of money being drawn out of consolidated revenue is for a purpose that has been authorised by Parliament.

Test the present case by saying, “What would the Treasury official ask for if the Commissioner went” – the Treasury official asking for a particular amount of money to be released from consolidated revenue. He would point to section 16 of the Taxation Administration Act but, freestanding, section 16 of the Taxation Administration Act just points to the existence of some duty to pay.

You can only make sense of section 16. You can only tell whether the money can be drawn from consolidated revenue by reading section 16 in conjunction with section 7. That is one point. The other point is probably more fundamental and that is this. You also have to recognise that there is a parliamentary process – it may not be judiciable, but it is a very important parliamentary process – that begins in the case of an appropriation with the request required by section 53 and it allows the bill only to be originated in the House of Representatives.

It would be a surprising, from the parliamentary point of view, and somewhat disturbing result if the existence of the standing provision in section 16 of the Taxation Administration Act was itself a sufficient appropriation so that an amount of 7.7 billion or 20 billion, or whatever it might be, could be required to be paid from the Treasury without going through that important and traditional parliamentary process. Your Honours, those are the only submissions I wish to make.

FRENCH CJ: Thank you.

MR LEEMING: I do apologise. Might I have your Honours leave to clarify one thing that just arisen?

FRENCH CJ: Yes, all right.

MR LEEMING: I am sorry your Honour. The State of New South Wales does not say that there are no limits upon the Commonwealth Executive’s power to make gifts. It is really the answer to the last question posed by the Court. We stand by our written submissions. We say there were limits. I think I said clearly that we embraced what Justice Mason said in the AAP Case. The fault is mine if I have been unclear about that. I did not wish with the Court to appear in error as to the State of New South Wales’ position.

FRENCH CJ: Mr Pape, you can safely get up now.

MR PAPE: The States like to intervene, your Honour. Your Honours, there are four points. The first point I would make in reply is the Act is not a law with respect to taxation. The Act in inseverable, is the second point. The third point I want to make some submissions on appropriation and the fourth is on nationhood.

As to, dealing with that the Act is not a law with respect to taxation, there are four matters that I wish to take the Court to. The first one is, which arose on Monday, and that is this. I mentioned the word “economic equivalence”. If your Honours are unfamiliar with that word, that appeared in Inland Revenue Commissioner v Europa Oil [1971] AC 760 at 771, C to D, and Myer Emporium [1987] HCA 18; 163 CLR 199 at 217 point 1 and the Western Australian tax case Cecil Bros v Commissioner of Taxation [1964] HCA 82; 111 CLR 430 at 441. All I am suggesting is that economic equivalence is the concept of if somebody gave a grant for a $100,000 for promoting exports, the same result could be achieved by giving a grant to a corporation, or giving a tax deduction, for $333,000 at 30 cents in the dollar is equivalent to $100,000.

Because you gave a grant to, say, under 51(i) trade and commerce to promote exports, that does not make it law with respect to taxation just because it has got some economic equivalent to what could be done under the Tax Act. I know that is trite, but I just thought that it is worth mentioning that this so-called gift, as I put it, is in fact something different to a tax rebate.

I go to the second point there. The fundamental situation is what was said by Sir John Latham, Chief Justice Latham, in the Bank of New South Wales v The Commonwealth 76 CLR 186 and 187. At 187 point 1:

Thus when a question arises as to the validity of legislation it is the duty of the Court to determine what is the actual operation of the law in question in creating, changing, regulating or abolishing rights, duties, powers or privileges

This Act does not do any of that. It only operates, as I have said in the written submissions, as a parameter or as a constant. It is no different from saying all taxpayers who have a taxable income of $100,000 are required to give their employees six weeks annual leave. That is not a law with respect to taxation, may I submit. That is a law with respect to employment or industrial relations.

All that is being used there is, in fact, the taxation Act or the taxable income figure to fix certain eligibility criteria. It is not a law with respect to taxation. It does not affect any rights. It in fact runs, may I suggest, neutrally. It is a neutral operation. It just sits there. That is the same way this so-called Tax Bonus Act does, in fact, operate. It just says, well, if you have a taxable income of $80,000 and a tax liability of $1, you are entitled to a $900 so-called tax bonus. May I just stop there.

Mr Leeming, our learned friend, suggested that it was not a gift simply because a taxpayer or a so-called recipient who did not receive it could in fact issue a writ of mandamus. Well, there is nothing wrong with that. Parliament has made the gift. It is Parliament that is making the gift. It is in the legislation. All the mandamus does is say, “Mr Commissioner of Taxation, you have failed to carry out your duty and Parliament has provided that I can go and ask you to perform the task which Parliament has given you.” That does not create a debt. All it does is allow the potential recipient to, in fact, enforce what Parliament has given.

So there is no great analogy and that characterises the whole thing. Now, the argument that has been put, and I will come to that, about severability, shortly. That actual concession by the Solicitor-General is really about economic equivalence.

We do not rely upon economic equivalence at all. We say, or the plaintiff says, this is a situation where nothing has been affected. The Tax Act is not being – or the tax liabilities have not been affected. The tax liability of the plaintiff is the same in the notice of assessment issued on 24 November as to when the Act was assented to and commenced on 18 February. The so-called adjusted tax liability means nothing. The word “adjusted” has no meaning in this context. No one in this courtroom today so far has given any attribution to what does the word “adjusted” mean. In the written submissions I have said it is superfluous or otiose.

So my submission there, and of course you have the Herald and Weekly Times Case where they talk about the practical operation. Well, that was a case dealing with licensing and wireless competition, and as the example that is put in there of a member of the Federal Executive Council took up shares in the company – or you could pass a law which prohibited a member of the Federal Executive Council from owning shares in a television corporation, a law with respect to television. That is not this case, in my submission.

Now, the word “tax bonus” – the Act is called tax bonus, and I am indebted to Mr Pegg to assist me this morning to work out what is a gift, and I think we have handed up to your Honours the Oxford definition of what a bonus is. The Australian Oxford Dictionary says “an unsought or unexpected extra benefit” or, indeed the Macquarie says “any unsolicited or unexpected gift”. That is why it has been framed, and I will say something about that in relation to severability later.

So, in my submission, the position is that it is not a law with respect to taxation. What its characterisation might be – I have suggested that its proper characterisation is a gift. Whether it is a gift, a grant, an allowance does not matter. The only relevant issue is whether it is a law with respect to taxation, and the submission is that it is not. One recalls the words of Lord Justice Rowe, a very famous tax judge – “Equity and tax are strangers”.

I have taken you to the adjusted tax liability situation. There is, in fact, nothing to be gained by looking at the word “justice”. Those words which are there, may I suggest to the Court, are really camouflage, to give it as though there is something that has happened; nothing has happened. I suppose one could rely upon the words of Mr Justice Rogers in the Supreme Court long ago when he said that war paint does not make a warrior, and that is all that the word “adjusted” seems to do, it seems to have – though there has been change, there has been no change.

Those are the submissions I would make in response to what Mr Leeming has said. The only other one on that issue is the Mutual Pools Case [1994] HCA 9; 179 CLR 155 and I refer to the passage of Justice Mason at 167, point 4, where Justice Mason talks about there had to be a tax first for there to be a refund. This is not a refund of tax. It is three lump sums arbitrarily fixed to arbitrarily determined taxpayers. It is not all taxpayers. It is a qualified situation. There is no nexus between this amount and what was the situation in Mutual Pools. A refund of tax was required because tax had been illegally collected. So there is a complete nexus there. There is not that nexus here, in my submission.

The matter dealing with appropriation, the third matter I wanted to deal with, was Justice Gummow yesterday mentioned section 51(ii), exclusive power. What Justice Windeyer said, as far as Worthing 123 CLR 127 – what the purposes meant there, public purposes, at point 9 – might I just refer your Honours to what Justice Gibbs said in the AAP Case where he was commenting upon what Chief Justice Barwick had said in relation to what was under section 51(xxxi), and the purpose of the Commonwealth under section 81. At the bottom of 374, point 9 Justice Gibbs said:

Speaking generally, it is true that where in the same statute different words are used it is presumed that the words were intended to convey different meanings. That presumption is in my opinion not a very weighty one, particularly in the case of a statute such as the Constitution, and it certainly does not justify a construction of s 81 which would have the result that the material words of that section should be given no effect or read in a sense quite different from their natural meaning.

One has only to go back to the way in which the Constitution was framed. It was not framed by a well-learned lawyer drafting a trustee or a contract so that all the terms were the same and consistent throughout, it was cobbled together in about three conventions. So it is no wonder that you have different concepts through the Act or through the Constitution.

The final matter dealing with appropriation, your Honours have been – I have handed up to your Honours, and I am indebted to Justice Hayne when he took me to the Audit Act on Monday and I delved back to the first Audit Act 1901. That talks about section 36(1):

Every appropriation made out of the Consolidated Revenue Fund for the service of any financial year shall lapse and cease to have any effect for any purpose at the close of that year and any balance of the moneys so appropriated which may then be unexpended shall lapse and the accounts of the year shall be then closed.

Your Honours would probably say then any association with the public service at any time there was a situation around about May that went out that said if you do not spend it, you will lose it.

So that is a connotation giving to the appropriation of Justice Gummow’s financial – that section of the Constitution dealing with financial management; 97 dealing with the audit; 81, 83. That is, and I suggested in my submissions and earlier on, really about financial internal control and, dare I say, constitutional bookkeeping, to put it in very stark terms. There is nothing extraordinary about that. The first Act – and we have the volumes here - the 1901 Act, I think there were only about five Acts passed in that year and the second Act I think was the Audit Act. 1901-02 dealt with that.

I think that, your Honours, gives some appreciation of the way in which section 81 should be interpreted. It has in fact been elevated through some of the discussions in the Pharmaceutical Benefits Case and the AAP Case to a situation which is completely unwarranted. When one goes back to 1901 there was no Canberra. The Parliament sat in Melbourne. It did not come to Canberra until 1927. It was a whole different situation altogether and, indeed - section 94. What happened if the Commonwealth had surplus money? It was to be paid back to the States. What happened with the excise? It was collected and paid back to the States – a different scene altogether. But that does not alter the fact that that is the way the Constitution should be interpreted. If it wants to be changed, there is a vehicle to change it – section 128. To embrace some other construction is, in my submission, unwarranted.

The final matter I wanted to take your Honours to is my learned friend, the Solicitor-General, spoke about nationhood and in paragraph 32E of his written submissions he said “Well, we will delete these words ‘which cannot be otherwise carried out for the purposes of the Commonwealth’”. I think those are the exact words – or the words which Justice Mason had at 397 point 7 in the Australian Assistance Plan Case. That was in relation to the fact this activity cannot be carried out unless the Executive needs to do it the way it wants to do it with this $7.7 billion dollar payment in lump sums of $900, $600 and $250. That is the only way it can be done, he says.

As I submitted to your Honours on Monday, there are many ways of doing it and one would have been for 2009 just to pass a law for a rebate and change the PAYE instalments – simple. If you did that, you do not need the executive power to make payments of $900, $600 and $250, just if there are 13 weeks left running until 30 June, that would run out on a weekly basis of $69.46 and $19 – just on a weekly, going through the PAYE situation.

So finally, your Honours, the only submission I would make is there was an easy way to do what the Commonwealth set out to do and that easy way, in my submission, was the right way. The way they chose was the wrong way and that was what has turned out to be, in my submission, the hard way.

Now, the other issue I have not dealt with, which I should have, is the issue of severance. In my submission, the Act is inseverable because it depends upon – Parliament has said it should be a bonus. It is called the tax bonus and I say – using the dictionary definition – that means a gift for everyone. There is no warrant for some form of economic equivalence which my learned friend, the Solicitor-General, has put to your Honours, that everybody under $900, $250 – if they have a tax liability of those amounts it is the lesser figure. In my submission, there is just no warrant for taking that course, because that is in fact to do what I say you cannot do - adopt some form of economic equivalence.

GUMMOW J: I think you are saying, Mr Pape, that even if one were to read down, as it was suggested this morning, that form of reading down would not cure the problem.

MR PAPE: Precisely, and that is what Sir Owen Dixon, or as Chief Justice - - -

GUMMOW J: Because of the whole nature of this Act, the bonus nature of this Act, you cannot cure that, you say, by chopping a bit off as is suggested.

MR PAPE: Yes, indeed, and the reasoning of that is set out in 76 CLR at Justice Dixon at pages 371 and 372 where his Honour in the Bank Nationalisation Case discusses this issue of severability. In my submission, it is incapable of being separated because that is in fact - if one reads the explanatory memorandum, the very people that were supposed to benefit from this so-called tax bonus are the very people who are now being excised by the Solicitor-General, so that seems to be contrary to what Parliament intended for everyone. They are my submissions in relation to – that the Act is inseverable.

The only other matter is that the plaintiff has agreed with the Solicitor-General that each party will pay its own costs. I am not sure what the position with Western Australia is, but I might - - -

GUMMOW J: The interveners neither seek nor suffer costs is the ordinary position.

MR PAPE: If that is the ordinary position we do not say anything further, but they did in their - - -

GUMMOW J: In other words, for this purpose they are not treated as a party.

MR PAPE: All right. Thank you.

FRENCH CJ: You are safe, Mr Pape.

MR PAPE: I thought the airfares from Western Australia were going to be quite expensive, your Honours. Mr Pegg has asked that I hand up to your Honour – I think your Honours have a copy of the document as far as the plaintiff is concerned regarding costs which sets out the situation as to what the Solicitor-General’s – those are my submissions, your Honour.

FRENCH CJ: Thank you, Mr Pape. I thank counsel for their arguments. The Court expects to be in a position to give answers to the questions in the special case on Friday. If that expectation is met, we will advise the parties at the time. The Court will now adjourn until 2.15 pm this afternoon.

AT 12.07 PM THE MATTER WAS ADJOURNED

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