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Pape v The Commissioner of Taxation of the Commonwealth of Australia & Anor [ 2009] HCATrans 59  (30 March 2009)

Last Updated: 30 March 2009

[2009] HCATrans 059

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 MONDAY, 30 MARCH 2009, AT 2.17 PM

Copyright in the High Court of Australia

MR B.R. PAPE appeared in person.

MR S.J. GAGELER, SC (Solicitor-General of the Commonwealth of Australia): If the Court pleases, I appear with MR S.B. LLOYD, SC and MR G.M. AITKEN for the defendants. (instructed by Australian Government Solicitor)

MR R.J. MEADOWS, QC (Solicitor-General for the State of Western Australia): May it please the Court, I appear with my learned friend, MS C.L. CONLEY for the Attorney-General for Western Australia, intervening in support of the defendants, but not on all the bases contended for by the defendants. (instructed by State Solicitor for Western Australia)

MR M.G. HINTON, QC (Solicitor-General for the State of South Australia): May it please the Court, I appear on behalf of the Attorney-General for South Australia with my learned friend, MR S.A. McDONALD, intervening in support of the defendants on a limited basis. (instructed by Crown Solicitor (SA))

MR M.J. LEEMING, SC: May it please the Court, I appear with my learned friend, MR J.K. KIRK, intervening on behalf of the Attorney-General of New South Wales. (instructed by Crown Solicitor for New South Wales)

FRENCH CJ: Yes, Mr Pape.

MR PAPE: Your Honours, this case is essentially fundamentally about one issue and that is the overreach of Commonwealth power. The question is, in overreaching its power the plaintiff says that the Tax Bonus for Working Australians Act 2009 is invalid.

The case involves a recognition that the Parliament is of limited power. It is not unlike or it is not like the United Kingdom Parliament, which has unlimited or plenary power. An interpretation of the Constitution which seeks to amend the Constitution is simply impermissible and the only way the Constitution can be amended is by section 128, a matter which Sir Owen Dixon referred to in the Pharmaceutical Benefits Case, which I will get to much later on.

What was said by Sir Owen Dixon on his swearing-in as Chief Justice in 1952, in my submission, is a matter which should guide this Court and the way in which it approaches the interpretation of the Constitution. It is useful to remind ourselves as to what Sir Owen said at that time. He said:

Federalism means a demarcation of powers and this casts upon the court a responsibility of deciding whether legislation is within the boundaries of allotted powers. Unfortunately that responsibility is very widely misunderstood, misunderstood, largely by the popular use and misuse of terms which are not applicable, and it is not sufficiently recognised that the court’s sole function is to interpret a constitutional description of power or restraint upon power and say whether a given measure falls on one side of a line consequently drawn or on the other, and that it has nothing whatever to do with the merits or demerits of the measure.

I underscore that proposition “it has nothing whatever to do with the merits or demerits of the measure”.

Such a function has led us all I think to believe that close adherence to legal reasoning is the only way to maintain the confidence of all parties in Federal conflicts. It may be that the court is thought to be excessively legalistic. I should be sorry to think that it is anything else. There is no other safe guide to judicial decisions in great conflicts than a strict and complete legalism.

Now, your Honours are more than well aware of that passage, but in the issue that is before this Court today it will become, in the plaintiff’s submission, uppermost. The matters that we will call for review, in the plaintiff’s submission, is a review of the 1945 Pharmaceutical Benefits Case and the 1975 Australian Assistance Plan Case. Both of these cases focus on those words in section 81 which you have already seen in the written submissions. What do the purposes of the Commonwealth mean?

What seems to have been erroneously viewed is that section, when it was inserted, had some latent characteristics that it was there, it did nothing for a very long period of time, it was looked at in 1945, it was reviewed again in 1975 and in 1988 with the Davis Case, but since that time, it seems as though the Commonwealth has used it to a great degree and, in fact, in my submission, it is probably nearly characterised as a constitutional black box; something mysterious which goes in and nobody knows what comes out. To lead on, this is the so-called “broad view” that the purposes of the Commonwealth have the same meaning as Mr Justice Gibbs said in the Australian Assistance Plan Case for any purposes whatever, or for such purposes as the Parliament may think. Well, if that construction was given for the purposes of the Commonwealth, there is really not much work for the Constitution to do.

That is what this issue may end up. I was saying there will be seven points that I will come to in a moment, but I pause to say that in reviewing the case to the Court, one of the advantages which the Court has which those Judges in the 1975 Australian Assistance Plan Case did not have was that the Acts Interpretation Act was amended and inserted section 15AB. So that today we and the courts can look at extrinsic evidence. We can look at what the Parliament said. For example, Justice Mason in that case, when he was looking at the nationhood power, referred to the Science and Industry Research Act of 1951. I went and looked at it recently and it refers to – actually it was 1949.

When one goes and looks at the explanatory memorandum, it was introduced by the Minister for Defence who was also the Minister for Reconstruction and Development. Justice Mason in that case developed the nationhood power between paragraph 39 and section 61. If he had had the advantage of reading the Hansard, he may well have seen that it could have been supported under the power of the defence power and the incidental power.

FRENCH CJ: The Acts Interpretation Act helps you with the construction of statutes.

MR PAPE: Yes.

FRENCH CJ: So why are you referring to it in the context of constitutional interpretation?

MR PAPE: Only in the case of looking at that statute itself, as it were, and the parliamentary debates as to actually what was the purpose of that Act.

FRENCH CJ: Which statute?

MR PAPE: It was the statute of the Science and Industrial Research Act 1949 No 13 – Act No 13 of 1949, but I will come to that later, your Honours. That is essentially by way of opening. The plaintiff makes essentially seven submissions. There are 10 submissions in the written submissions, but in a skeleton form let me outline those submissions so far as the plaintiff is concerned. The first one is that the Tax Bonus for Working Australian Act is not a law with respect to taxation. It falls foul of section 51(ii).

Secondly, the appropriation power in section 16 of the Taxation Administration Act, when one looks at the explanatory memorandum when that was inserted by Act No 123 of 1984, it refers to refunds of taxes and related matters. It is interesting when one looks at the history of refunds of tax there were no appropriation powers from 1915 on when the Commonwealth first entered the field of income tax through the 1922 Act. Of course, I do not if you recall, your Honours, 1922 to the outbreak of – till 1942 it was the States that actually collected the income tax. Then one goes to – not until 1984 that the Commonwealth thought, well, perhaps out of abundance of caution we ought to pass an appropriation power which actually dealt with appropriating refunds of income tax.

HAYNE J: That proposition may have to take account of the Audit Act 1901, at least in the form it took from 1961 onwards, where you will find, I think it is, section 37A in the Audit Act 1901 (Cth), which at least at first blush appears to provide an appropriation for moneys which the Commonwealth is bound to repay, which are moneys which have been already deposited in the consolidated revenue fund. It may be that 37A of the Audit Act supplied a sufficient appropriation, at least from its enactment in, as I say, I think the Audit Act 1961 (Cth) Commonwealth, amended in 1962, but then persisted until the Financial Management Act.

MR PAPE: I am indebted to your Honour. It is one of the difficulties of finding these things and I can say that even finding section 16 was tucked away in the miscellaneous provisions when they were inserted down the back after we went through all the prosecution provisions of 1984, and everything tucked away down there was just that little old section 16 which, if one looks at the budget, allows refunds of up to something like about $20 billion a year, but we do not want hassle about putting something in the miscellaneous provisions. The point I make there is that section 16 effectively only applies to the refunds of income tax and related matters.

Now, if, in fact, that is all it operates to do, there is no appropriation power, in my submission, to support any other head of power which my learned friends, the Solicitor-General for the Commonwealth, might seek to rely upon; on that basis would be, to use a tennis expression, a game, set and match, but I suspect there is a little bit more in it.

Contrary to that submission, the plaintiff says that section 81 does not provide a head of power. I might just say there that in the submission of Chief Justice Latham in the Pharmaceutical Benefits Case he made an observation that perhaps the appropriation power could also fall under the normal head of power so that you actually had some dealing with a substantive law and then also dealing with an appropriation power.

Now, effectively, what my learned friends are going to say is that under section 81 you can have an appropriation power correspondingly but, by some form of magic, you can tack on a power to do things, a power to enter other fields of activity. That construction – and I go back to what Sir Owen Dixon said – is simply impermissible. If you want to do that there is a way around it and that is section 128. It is not for the Court to do that; the Court is here to interpret the Constitution, not to amend it. That sounds trite but that is the issue here.

FRENCH CJ: The problem is these sorts of statements become a way of characterising interpretations that you disagree with. It does not assist us much.

MR PAPE: That may well be. I know, your Honour. I am trying to do that, but I am just going through the skeleton of the argument. Fourthly, there is no relevant nationhood power and to that extent that relies upon paragraph (xxxix) and section 61. What I do say in that, when one looks at what Justice Mason did in the Australian Assistance Plan Case, 134 CLR, and looks at the Act that he was speaking of, at page 397 he said at about point 8:

It is in the exercise of this capacity that the Commonwealth has established the Commonwealth Scientific and Industrial Research Organization to undertake scientific research on behalf of the nation. The Science and Research Act 1951 –

I suggest it is 1949:

as amended, is an exercise of the power conferred by s.51(xxxix.) and s.61 -

the executive power:

or perhaps of implied power.

GUMMOW J: I think if we are going to be looking at section 61, as I imagine we are, a good starting point may be in what Justice Isaacs said in the Wool Tops Case [1922] HCA 62; 31 CLR 421 at 437 and following. The use of the word “nationhood” is just some gloss on interpreting what is meant by the executive power provided for in section 61 with the legislative assistance of 51(xxxix).

MR PAPE: In my submission it is not some expansive-type power. It is not what one might call in a debate in another country which runs a different system of government the executive power in the United States. It is a different thing altogether. I would suggest that that is not an area that this Court would be at all interested in. That is the fourth point.

The fifth point is that there is no – the plaintiff says the trade and commerce power has simply no application and the plaintiff would adopt the submissions of the Solicitor-General for New South Wales, Mr Leeming. Sixthly, the external affairs power has no application and the plaintiff would adopt the submissions of New South Wales in respect of the external affairs power.

Seventhly and finally, the plaintiff has standing on all issues, not only in relation to myself, but in relation to an order that the Act is invalid. Might I just suggest in passing that if one takes the Auckland Harbour Case that if money was in fact – and your Honour the Chief Justice has in fact dealt with that in a case called.....I think in the late 1980s. If money was paid by the Commonwealth and it was improperly or illegally paid it would have to be recovered. Reading the explanatory memorandum, I think there is something like about close to eight million taxpayers who the Commonwealth would have the right to recover any money that was paid if it was paid unlawfully.

So my submission there would be that would warrant a grant of a declaration that the Act is completely invalid against everyone. In fact, the short answer is if the corollary that follows, if it is invalid for one person, it ought to be invalid for everyone. That is the outline of the seven skeleton submissions that I put to the Court. If I may now take your Honours to the written submissions which I have given, I wish to elaborate on those.

FRENCH CJ: Before we go to those, Mr Pape, I know that you are challenging the relevance of some of the agreed facts and presumably that is integrated into your argument, but the agreed facts are in a substantial part, although not completely, agreements about what various international bodies or government departments have said, statements that they have made and so forth. If I refer, for example, to paragraph 9 of the agreed facts, the UEFO, that is the Updated Economic and Fiscal Outlook, says that the world is in the midst of a global recession, et cetera. Is that a statement of fact that is agreed or is it the fact that the Treasury says that is agreed?

MR PAPE: The Treasury says it is agreed. With great respect to your Honours, one is analysing the Constitution. That factual material, in my submission, cannot help this Court to analyse - - -

FRENCH CJ: That is a different question. That is the question of relevance which you have raised and I have distinguished that. I am just trying to find out what the nature of the agreement is.

MR PAPE: The agreement is it went in on the basis that I reserve my right to object to it simply on the grounds of relevance. I do not mind it being there. The only submission, I may say, is it is irrelevant.

FRENCH CJ: Relevant or irrelevant, do you accept the accuracy of the statements which are made?

MR PAPE: I am not an economist and I do not cavil with any of those matters. I just simply say, accurate or inaccurate it is simply irrelevant because what the Court is doing is interpreting the sections of the Act. What the updated economic forecast of the Commonwealth in February of this year has to do with the interpretation of this Act or the Constitution escapes me. That is why I say it is irrelevant.

CRENNAN J: One difficult question that inevitably comes up is to ask who has constitutional responsibility for the national economy?

MR PAPE: That is a very good question, your Honour, and the constitutional responsibility for that, one might say, could be in the Executive Government but it has to work through the powers it has been given under the Constitution. I am glad your Honour raised that point because this issue has happened before; this is not the first time that this country has had some difficulty with the economy, and it has worked its way through. One can go back to 1961 where there was a credit squeeze, and your Honours will also note the 1961 Companies Act came out of that piece of economic difficulty. The then government decided in February of 1962 to give a 5 per cent tax rebate to stimulate the economy. They did it through the taxation power - 5 per cent from March through to June. The next year was a 5 per cent tax rebate for the whole year 1963; 1964 was another 5 per cent tax rebate. So we had 2 years and perhaps 4 months tax rebates of about 5 per cent flowing through to the economy.

Nothing happened in 1964. The following years, the economy was booming away. What did the government do? It put on a surcharge of 2.5 per cent and I think it finally petered out with a last one of 5 per cent in about 1972. So there is a complete demonstration, if I may suggest to your Honours, of how the Executive Government of the Commonwealth – Justice Crennan asked the question – was able to manage the economy through the taxation power; simple, and, indeed, one may ask, a course which perhaps could have even been taken in this case.

May I suggest that the way in which those instructing my learned friend went about it, there is an easy way and a hard way. The way in which that Government went about it when then they gave the 5 per cent rebate was simple, because all that happened was that they varied the pay-as-you-earn deductions through the paymaster each year. They did not have to send any cheques out. It just flowed through straight away. So it is not a difficulty.

I have a schedule which I have prepared which just lists the rates which went through. So I am just using that as an example where the national economy has, in fact, been managed by the Executive through the powers it has already been given, and they are extensive. There is the banking power. The Reserve Bank Act, I think, was passed in 1959.

CRENNAN J: Excise? You can think excise. You can think of many examples.

MR PAPE: Yes, there are many examples. They do not need to create new powers to manage the national economy. As Sir Garfield Barwick said in the Australian Assistance Bank, just because it is of a national interest does not mean it attracts the Constitution. I have a schedule of what I might call income tax rebates and surcharges which just illustrate what occurred in the 1960s as to how the economy was managed through the taxation power. Indeed, there are many things which the taxation laws do to manage and stimulate the economy; investment allowances – in fact, the Tax Act is replete with sections which go to improving economic activity.

FRENCH CJ: This is all designed, is it, to suggest that there is no requirement to infer from the collocation of what one might call economic and financial powers some sort of emergent power to manage the national economy – quote, unquote?

MR PAPE: Precisely, your Honour. This country has been through many economic difficulties and it will continue to go through them. That is just the nature of life. There is nothing unusual about it except that each generation thinks it is unusual because it is the first time it has happened to them. Those who have seen what happened in 1961 are well aware of it and what we have had, as your Honours will have seen, through the years there would be – probably in the1970s there were difficulties and you have – until the floating of the exchange rate we sort of had a boom and bust type situation.

FRENCH CJ: Anyway, we had better get down to the wire on the Constitution.

MR PAPE: Thank you.

FRENCH CJ: I understand that, yes.

MR PAPE: I am indebted as to Justice Crennan for asking that question because it allowed me to say something about that issue, which is an important one. But the taxation power, the Act falls foul of section 51(ii) – and I may be criticised for going back to what Justice Kitto said - - -

FRENCH CJ: I notice you say it “falls foul of section 51(ii)” and I notice in various parts of your written submission you refer to the Act possibly being declared invalid as being unsupported by the taxpayer. All that would mean is that that power would not be a support for the Act. It does not mean it is - - -

MR PAPE: Yes, it does not support the Act, yes.

FRENCH CJ: It does not mean it is invalid. It may be it is supported by some other power and it is the rest of the argument we have to have.

MR PAPE: Yes, under section 51(ii). It is certainly not supported by 51(ii). All I say in relation to that that the tax bonus legislation has to affect some right, duty, power or privilege or change it. It has to be more in relation to any of those subjects than an interference so incidental as not in truth to affect its character. The interesting thing about this Act is it does not say anything about changing any taxation liability. The plaintiff’s taxation liability is the same under the Income Tax Assessment Act, the same under the adjusted – there is no change in it. All that is being used here is as a framework or – indeed, in my written submissions I have put to your Honours a parameter which to calculate who is to be entitled to what I suggest is a gift and what the quantum of the gift may be. But there is no income tax law which has been changed or affected in any way.

Unlike the case in the Herald & Weekly Times where they are dealing with the issue of television licences, which I think the learned Solicitor-General from New South Wales referred to and talked about practical or business influence, there is none of that here. It is just, may I suggest, a device to, in fact, compute a figure and to pay it out using the mechanism of the administration of the Taxation Office.

FRENCH CJ: It provides a bit of an incentive to lodge your return by 30 June, does it not?

MR PAPE: Precisely, but, your Honours, there is a regulation which says that most taxpayers are required to lodge their return by 31 October and here is the Commissioner saying, “Well, do not worry about that. If you have not lodged by 31 October, you can lodge it any time after that”, and I am not sure what the penalty situation is, but that is another story.

FRENCH CJ: But in terms of the task for characterisation, does that section 5(1)(e) have anything to say?

MR PAPE: 5(1)(e) of the - - -

FRENCH CJ: When a person lodges his or her tax return, et cetera?

MR PAPE: Yes:

(e) the person lodges his or her income tax return for that income year no later than:

(i) unless subparagraph (ii) applies – 30 June 2009; or

(ii) if, before the commencement –

I do not think that changes one – most tax returns would have been lodged or should have been lodged. The only people who are in that situation are those who file through a tax agent. So that is in saying - - -

GUMMOW J: I have a legislative instrument signed by the Commissioner on 24 June 2008 – it is a document of some pages – regarding lodgement of returns for the year of income to end on 30 June 2008. Page 2 of that would indicate, as you say, 31 October unless there is some special arrangement.

MR PAPE: That is right. That is the normal standard procedure. On the tax return itself it says this has to be lodged by 31 October otherwise you are exposed to a penalty unless you file through a tax agent who has got an extension or a lodgement program with the Commissioner of Taxation. One could only imagine those people who are on the 30 June 2009 situation are in that situation otherwise they would be subject to a penalty for failing to lodge - - -

GUMMOW J: But is there an administrative practice with respect to the penalty?

MR PAPE: I do not know the administrative practice other than that – I think the position – one might get what is called a final notice. If you do not comply with this final notice by lodging the return you will be exposed to a penalty. So you will at least get what is called a final notice and my experience has always been the practice. One did not just issue a summons straight away. The Commissioner’s practice was always to issue a final notice. Sometimes I think the administrative practice was that the 31 October deadline he might vary by a couple of days or something like that.

All I am putting to your Honour is that the essence of attempting to characterise this as a law with respect to taxation, one has to look as to where is the tax liability or responsibility which has been affected or changed. It is, in fact, constant. There is nothing there. The 2008 assessment is the same. In fact, I make the point in the submissions that the word “adjusted” is in truth otiose and superfluous. Really, what is adjusted? Nothing is adjusted. One might cavil and say, well, it also includes the Medicare levy, but that is truth picked up and sued for as a tax. It would be semantics to suggest otherwise.

The plaintiff’s liability is the same if there was some change in it and, of course, the issue could be it could well have been made a law with respect to taxation. For example, as I have put in the written submissions, if the Commissioner or the Parliament had decided to say “We will make a retrospective adjustment, we will give a tax offset of a certain sum, let us say $900”, that would throw up a tax refund of $900. Administratively, probably a nightmare for the Commissioner to issue another eight million assessments to do that, but that is an administrative problem.

The other point that comes out of looking at whether it is contrary to section 51(ii), I suggest there is no so-called economic equivalence. It is either a law with respect to taxation affecting rights and liabilities. The fact that one could characterise it and say, well, the Parliament has said we are going to spend $7.7 billion, and if one looks at the budget figures for the mid-year economic forecast, a rough calculation might be $126 billion; 7.7 over about 126 is about 6 per cent, effectively a 6 per cent rebate, but that is not the legal way of doing it. That is an economic equivalence situation. In my submission, that would be impermissible to do that.

The short answer, your Honours, there was an easy way to do it and that was in accordance with the Constitution and there was a hard way to do it and that is the way the Government and the Commonwealth have gone about it.

HAYNE J: Is it necessary also to take account of the references in the Act to adjusted tax liability and, in particular, the fact that what is described as the adjusted tax liability must be greater than nil in order to qualify for payment under the Act and adjusted tax liability requires account to be taken of tax offsets?

MR PAPE: In computing the tax in any case you must take the tax offsets off to come up with the tax liability. All I am saying is - - -

HAYNE J: But having regard to the great breadth of items dealt with, particularly in section 13-1 of the 1997 Act, as tax offsets, is it possible that a person may have a taxable income falling within one or other of the bands identified in this Act and yet have an adjusted tax liability of an amount less than the amount of the tax bonus?

MR PAPE: It could be that there is, in fact, no tax liability at all.

HAYNE J: You are not eligible unless you have an adjusted tax liability of at least a dollar.

MR PAPE: Of a dollar. You must have that and, of course, you are not eligible otherwise. If you have one dollar and you have a taxable income of $80,000, you are entitled to $900. If it is between 80,000 and 90,000, you are entitled to 600 and 90 to 100, you are entitled to 250. So all you have to have is one dollar and you will get $900 – 899. That, in my submission, as your Honour Justice Hayne, has said, seems to characterise it more in the nature of a gift.

HAYNE J: I do not think I went that far.

MR PAPE: No, you did not, your Honour. I withdraw that, your Honour.

HAYNE J: All I did was ask a question.

MR PAPE: Perhaps I am putting words in your Honour’s mouth.

HAYNE J: It is the wrong jurisdiction to be verballing, Mr Pape.

MR PAPE: Yes, I am sorry, your Honour. It must be an old habit I picked up a long time ago. I am sorry, your Honour. So that is, in short, in a nutshell as to what the plaintiff says in relation to the tax bonus.

The next submission I make is in relation to section 16(1) of the Taxation Administration Act, which I adverted to earlier, Act No 123 of 1984. The explanatory memorandum in that Act referred to refunds of tax and related matters. As this Court has now in this method of statutory interpretation, one does not have to look at the difficulty, one goes and looks at the explanatory memorandum first. There one sees refunds of tax and related matters not in relation to gifts or any other payments. So the submission I make, it should be construed there, the words as referring to simply that, a refund of tax. If this is not a tax, section 16 has no application.

What then follows is the issue of, if that is not the case and the Court is against me on that proposition, whether there is an appropriation section which supports any other head of power to support the defendant’s position. That comes to a submission in relation to the appropriations power.

FRENCH CJ: Just before you leave that, going back to 16 and its relationship to the explanatory memorandum, your contention is that 16 must be read as limited to refunds of taxes and related payments, is that right?

MR PAPE: Yes.

CRENNAN J: What if the minimum tax paid was required not to be one dollar, the adjusted tax liability, but $900? How would your argument run then?

MR PAPE: It does not change. All I say is that because it – one dollar and $900 that characterises as a gift in that it just flows through, whether it is $250 or whatever. That will be what you might call a break-even point.

CRENNAN J: If it is 900 or more, why could it not be characterised as a refund?

MR PAPE: That is to say, what tax has it affected? What your Honour is putting to me is really the doctrine of economic equivalence. I suggest that is impermissible, that because you end up with the same result on an arithmetic basis, that is not in accordance with the construction of what Justice Kitto would say that what rights have been affected, what liabilities have been established, there is nothing happened there. It just so happens that the arithmetic is that economically in one pocket you had to pay out $900 tax and in the other pocket a few months later you got $900 back. So it is a break-even situation. In my submission, that is impermissible. That is why I opened these remarks, the merits or demerits of it are irrelevant. That would be to take it one step further to talk about economic equivalence and where do you draw the line there?

I do not think I can take that much further other than to say that is the submission, your Honour. I will take your Honours, if I may, to the appropriations power.

GUMMOW J: Whose power is it?

MR PAPE: I am sorry. I withdraw that. That is an expression which seems to have crept in.

GUMMOW J: I know.

MR PAPE: In my submission, it is not a power. It is, in fact, wrong to characterise it as a power because the essence of it, in my written submissions, is it is a subordinate provision. It is something which I have not seen expressed before. It is a section which follows, it does not lead and in the way in which it has been suggested by Chief Justice Latham in the Pharmaceutical Benefits Case and, indeed, Justice Mason in particular in the Australian Assistance Plan Case, it has a broader connotation.

One of the interesting things that perhaps Chief Justice Latham in the Pharmaceutical Benefits Case is that there is an excursion and a discussion of the width of this power, but it was unnecessary for his decision. It is as though we went on an up hill, down dale – and this is very interesting – but at the end of the day he did not need it to write his decision, but it is there in his reasons. What I am suggesting to your Honour, it has been unhelpful because of this excursion. That excursion has then been picked up by Justice Mason and others – Justice Murphy in particular – to attempt to develop some new and – Justice Gummow has just corrected me, the power.

There is no such power at all. It is in the finance provisions of the Act. It no more than, dare I say, an accountant’s journal entry, to put it in rather crude terms. It is appropriating, meaning setting aside, some money for a particular purpose. It is not to create a new purpose. It is just setting aside for a purpose which has been established either by the Parliament in the various 39 paragraphs or in relation to the Executive, using that, or in relation to the judiciary. The High Court Act, for example, an appropriation there. So it has taken on a measure and in fact to take it even further - - -

HAYNE J: Just before you develop that a little further, Mr Pape, what is said in Pharmaceutical Benefits must I think be read with close attention to the argument that was advanced in that case, particularly the argument of Dr Coppel on behalf of the Commonwealth at 71 CLR 245 and 246, that there, particularly at 246 I think you find a genesis - whether it is the genesis - or at least you find reflection of the notion that:

s. 81, in conjunction with s. 51 (xxxix.), affords authority for a statute which not only provides for the spending of money for a purpose of the Commonwealth but also provides conditions controlling –

Now, if you go back through the whole of Dr Coppel’s argument, it is all cast in terms of the power to spend and there is not any evidently separate treatment of power to spend as distinguished from whatever it is section 81 is doing.

MR PAPE: I am indebted to your Honour for raising that issue because, reflecting on that, the book I have in my hand is the Constitution of the United States of America. My learned friends have made some submissions on that and it was discussed in the Pharmaceutical Benefits Case and, indeed, Justice Dixon said, in relation to section 81 of that Act, to interpret the Constitution in that way would be to amend it. That is not interpreting the Constitution; that is amending it. So section 8 of the United States Constitution says:

The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States -

The argument has been put “You have this coercive tax power, the other side of the coin is, well you should be able to spend”, which I take it is what Justice Hayne you have just put to me is that that is where Dr Coppel was advancing that line of territory.

HAYNE J: You can see it most clearly at 245 at about point 6 of the page:

In Australia regard must first be had to the power to spend under s. 81.

The argument is advanced in terms of 81, if properly described as a “power to spend”. I understand that you are about to make a submission that sought to attribute some other description or characterisation to it - I interrupted you.

MR PAPE: Thank you, but it is certainly not a power to spend at all. It is really an accounting, since it is what - section 81 could be phrased this is an area of internal control and appropriation. It is the constitutional accounting sections of the Constitution and all it does very simply, it appropriates money to a certain activity which has been authorised. It is really about not spending or power, it is about authority.

The power has already been created and in fact the submission I make is that what has happened there is that the Parliament, when it enacts legislation, creates channels, writes channels in which money can flow. All section 81 does is allow that money to flow in a channel. It does not create the channel, which is Dr Coppel’s type situation; he would in fact use 81 to create the channel.

The submission I was coming back to was in relation to what Chief Justice Latham said in the Pharmaceutical Benefits Case. He looked at the situation as to whether the appropriations power could also be included in a head of power. For example, under the defence power, under that power you could have the substantive provision. You could also have an appropriations power.

Now, what my learned friends are effectively saying is that there is a corresponding situation in the appropriation to section 81, that you have the appropriations power, but tacked on to that effectively is a power to enter into new fields, to authorise some new activity. Well, if one goes to that situation that renders nugatory all of the other paragraphs of section 51. Why have any of the 39 paragraphs in section 51? We may as well just delete those and just have the section which says the Commonwealth Parliament shall make laws for the peace, order and good government of the Commonwealth. The exact words are - - -

FRENCH CJ: That equivalence would rather suggest that every other head of power is only confined to spending or appropriation.

MR PAPE: Every other head of power?

FRENCH CJ: But that is not right, is it?

MR PAPE: No, every other head of power creates rights and - - -

FRENCH CJ: Obligations.

MR PAPE: - - - obligations, but if one looks at the views of Chief Justice Latham he says it could also include an appropriations power. On his view you would not need a section 81 situation. Well, all I am saying is I am only using his illustration there to put a corresponding side of it to say well let us look at how section 81 is being viewed. All I am saying is that it is just an authorisation, but by some form of correspondence or mutuality or synchronicity or whatever you would like to call it there is some tack on there and we view that. Well, if you go to that situation you end up in the United States section 8.1 situation.

FRENCH CJ: Well what you are saying reduces to this, does it, and I may have it wrong, but that section 81 imposes the requirement for the establishment of a consolidated revenue fund, and says nothing more than that it is from that fund that moneys either be taken for the purposes of the Commonwealth. In other words, that is the source.

MR PAPE: That is right.

FRENCH CJ: And that the taking is:

in the manner and subject to the charges and liabilities imposed by this Constitution.

Then you have the constraint imposed by section 83 to be by law.

MR PAPE: Yes. Now, the question is what do the words “the purpose of the Commonwealth” mean. Your Honour the Chief Justice has raised that. This hearing and this case provides an opportunity to look at that as if it were a clean sheet of paper.

CRENNAN J: You agree, do you not, that it covers legislative judicial and executive powers?

MR PAPE: Yes, I do, but nothing else.

CRENNAN J: It is the executive powers that may be of greatest interest.

MR PAPE: The executive power, in my submission, cannot – there is a prerogative power that is interesting but there is also the non-prerogative power which really relies upon paragraph (xxxix) to do what it does. Bearing in mind that the words of the section refer to the execution – section 61, when looking at that, refers to the execution and maintenance of the Constitution and of the laws of the Commonwealth. It is not about creating anything. It is about administering something which is all there. I think I made in my submission to the questions which the Court asked that that is a – there is in many ways a counterpart to that.

CRENNAN J: May I raise with you a passage of Justice Dixon’s as he was in the Pharmaceutical Benefits Case at page 269. At about point 4 of the page his Honour says:

Even upon the footing that the power of expenditure is limited to matters -

Do you see that?

MR PAPE: Yes.

CRENNAN J: He refers to:

it necessarily includes whatever is incidental to the existence of the Commonwealth as a state -

That is presumably a reference to matters like a treaty or a declaration of war:

and to the exercise of the functions of a national government.

MR PAPE: Yes, but remembering the paragraph – having said that, one also has to go back and read what section 51(xxxix) always says:

matters incidental to the execution of any power vested by this Constitution in the Parliament -

or in the Executive. That is shorthand for in the federal – “or in any department or officer of the Commonwealth”. It is incidental to the execution of it. It is not about the creation of some new power. The nationhood power is really an incidental one. We saw that perhaps in the Davis Case which was about the bicentennial authority. That is about ceremonial, but it is certainly not about substantive issues leading into new fields. Otherwise that would be to render the other paragraphs of section 51 – or diminish them; render them actually nugatory. You end up with the first proposition I was putting to your Honour that if you deleted all of those paragraphs in section 51, all you end up with is:

The Parliament shall, subject to this Constitution, have power to make laws for the peace, order and good government of the Commonwealth -

full stop, which is the United Kingdom Parliament – the unitary system of government. This is not a unitary system of government. It happens to be a federation, which may be unpalatable to some, but that is a fact of life that we have a Constitution and it is a federation. If people do not like that, there is a way to fix it. It may have other difficulties, but that is not a matter that this Court need trouble itself with. That is somebody else’s problem.

GUMMOW J: There is a movement in that passage on page 269 in Justice Dixon’s reasons. He talks, at about line 12, of the power of appropriation given by section 81 and then, about six lines later, the power of expenditure. I am not sure they are the same thing.

MR PAPE: He says:

The claim means that, though the Commonwealth is a government of defined and enumerated powers, the power to spend money is independent of the limitations which affect the other powers of the Commonwealth and is not to be restricted by reference to the purposes - - -

GUMMOW J: The phrase “power of appropriation” is the source of the problem.

MR PAPE: Yes.

GUMMOW J: Section 81 is a requirement as to the Constitution of the consolidated revenue fund, and then there are limitations and conditions imposed upon what the Executive can do with it. In particular it has to get an appropriation under section 83 before it can draw on it.

MR PAPE: That is right.

GUMMOW J: And that is it.

MR PAPE: It is as simple as that.

GUMMOW J: Then it has power to expend it. Having gone into the bank, as it were, I imagine one looks somewhere else in the Constitution.

MR PAPE: That is precisely the submission that I make, your Honour.

GUMMOW J: In other words, 81 and 83 are all about the relationship between the Executive and the Parliament.

MR PAPE: That is right.

GUMMOW J: Not between the Parliament and the public, if I can put it that way.

MR PAPE: Indeed, in that second question, I went to some time to spend to remind that this is a Westminster system, section 64, the members of the Executive have to sit in the Parliament. They are responsible to the Parliament. That fixes up a whole range of things. One seems to have, because of close communication today in the media, the so-called debate in the United States on the power of the Executive there permeating across the Pacific. In my submission, that is, stays where it belongs, in the United States.

CRENNAN J: I think you could say that there it is characterised by judicial deference to Congress’ decision-making powers in relation to spending. It is a very different situation.

MR PAPE: Yes.

CRENNAN J: By convention.

MR PAPE: Yes, but also, your Honour, I make the point that the power of the Executive in the United States is a whole lot different to what it is here. A classic example would be in relation to regulation making power, as I understand it. Here we have a situation where Parliament delegates legislative power to the Executive to make regulations, but it has the power under section 42 to veto that. That is not the situation in the United States, as I understand it, because of their separation of powers doctrine.

I make the point that there was a so-called bright-line test that might have to be developed, but I do not press it in the sense that – and this is at (v) in my written submissions – on appropriation, at page 7. The interpretation given by Chief Justice Latham and Justice Mason means it would be permissible to tack on additional powers which simultaneously create rights and appropriate money. Such a construction necessarily calls for the establishment of some bright-line test. This approach is unwarranted, is wrong and should not be followed. That is the territory that it seems to be that 81 has been used as a vehicle to expand Commonwealth power. I made the observation earlier, or I make it now, that when the Constitution was established, section 81 really did not have any work to do. The concept of nationhood, if it be then in 1901, in my submission, just did not exist because what was Australia then? It was no more than a self-governing, independent colony. That might be sound difficulty. I think Chief Justice Barwick at one stage made reference to it and he called it that. Indeed, and not until much later and one comes to the statute of Westminster and the 1942 adoption of it, retrospective of the outbreak of the Second World War, very much a colony. Where is this concept of nationhood where, in fact, the foreign affairs power – I do not think there was even a foreign affairs office or it was in its very limited beginnings.

So you have a whole situation of – only of recent time, probably since Davis – that in the last 20 years the Commonwealth has decided to, as it were, this “latent power”, this latent authority, section 81 has come to the aid of the Commonwealth to enter new fields of activity. Its first embrace of new activity, not relevant to today, but was probably section 96. The modern new device is section 81 which uses, for example, in programs such as Roads to Recovery, bypassed the States and go straight to making payments to local government.

GUMMOW J: There is a question, is there not, as to whether local government is part of the State.

MR PAPE: Is whether it is part of the State?

GUMMOW J: Yes.

MR PAPE: Well, it may be.

GUMMOW J: Subdivision of the concept of State. We do not have to get into that fortunately.

MR PAPE: It may well be that those payments are valid. It could be that the local government answers the description of a trading corporation or a university, I do not know, but what I am saying - - -

FRENCH CJ: They are the statutory creatures of State parliaments.

MR PAPE: Yes, but that in itself, in my submission, does not necessarily mean that they are a State instrumentality. Those are my submissions in relation to the section 81 point. In the course of doing that, I think I have probably dealt with the nationhood power and the incidental power and, in fact, I probably dealt with that when I answered the question of Justice Crennan on the rebates, because that, in my submission, is helpful as to the way in which the Commonwealth uses the powers it has already got to control the national economy. It does not need these so-called any expanded incidental power.

I may be so bold as to suggest that perhaps this incidental power should be regarded as something with paragraph 39 as something in the order of a little bit of constitutional housekeeping to keep together matters which have not been thought through completely and that is why it is paragraph 39, it is not paragraph 1, it is paragraph 39 to assist in the execution and administration of the power. The other matter I would take your Honours to is - - -

GUMMOW J: I just want to be sure what you say about section 61 plus 51(xxxix) with respect to laws providing for expenditure of money and creation of rights and obligations in relation to that expenditure. What are the limits on the executive power as to expenditures which can be supported under 51(xxxix) by statute?

MR PAPE: The Act which is supporting that has to be, the words are:

and extends to the execution and maintenance of this Constitution, and of the laws of Commonwealth.

It is about assisting in the administration of the laws of the land, not in developing new laws. There may be laws which need to be established to assist in the administration, as I say, some constitutional or parliamentary housekeeping, to make sure that the main heads work. It is not to go off into some sort of new field of activity relying upon some nationhood power and using subsection (xxxix) to do that.

GUMMOW J: Well:

Matters incidental to the execution of any power vested by this Constitution in the Parliament or in either House –

would include the appropriation under 1881 and I think, you would agree, would support the Audit Act provisions as to control of what goes on with the revenue fund and payments out of it, so on and so forth. Then the question would be, what is involved in matters incidental to the execution of a power vested in the government of the Commonwealth by section 61, would it not?

MR PAPE: Yes.

GUMMOW J: Where that involves some form of expenditure, as in Davis’ Case, I suppose, on bunting and bans.

MR PAPE: Indeed, perhaps even the High Court Act, I mean, the expenditure on providing courts. That is all part of that incidental power. The Federal Court Act and its appropriation, the Federal Magistrate’s Act, all of the judiciary, in fact, the whole federal judicial system is probably anchored in paragraph 39. That is where the head of power comes from.

GUMMOW J: What is the monetary component, if I can put it that way, of the notion of executive power?

MR PAPE: There is no monetary component. The only monetary component in the executive power is what Parliament appropriates. It is what Parliament says you can spend. In fact, Chief Justice Barwick said, well, there is no inherent - - -

GUMMOW J: Granted the appropriation to the Executive.

MR PAPE: Well, if I may answer your question this way, Justice Gummow.

GUMMOW J: All appropriations will be to the Executive.

MR PAPE: Yes. How the Executive spends that money is entirely a matter for the way in which the Executive goes about its task. It is given a task under the Act. How it chooses to do it – if it says, “Well, we want all the military fences to be painted green instead of white”, off they go and do it. That is entirely a matter for them. That is their choice. That is a matter of how they in fact carry out their task. That is given to them by the relevant Act. That is a choice. It is not about saying, “Well, you have only given us $1 million to do the paint job, we actually need $3 million”. If they went and spent $3 million, I suggest that the Auditor-General might have something to say about that because they have overspent their appropriation power.

So all the Executive’s power is, in fact, limited as to how it carries out its task. It is not about creating new roles for itself, which comes back to the Executive sits in Parliament. If they want to do that, there is a way to do it, to get an Act put through the Parliament. It is not about seeking to convert it into some new separate head of power.

HAYNE J: Do I understand the answer you have just made to Justice Gummow to amount to an answer that the Executive cannot spend without two things; first, an appropriation of the money and, second, some Act other than an Appropriation Act regulating the spending or providing for its making? Is that what you say?

MR PAPE: There needs to be an Appropriation Act. Yes, I do say that. Well, indeed, the classic example is the grant of supply. That is an Appropriation Act for the annual services of Government. That is an Act of itself, but that is in support of all of the other functions which the Government carries out and that is an Act of Parliament appropriating the money.

It must be that there is some other head of power to authorise the spending. It comes back to the point we were making earlier that really this whole concept of appropriation is an accounting internal control; internal as Justice Gummow has put to me, the relationship between the Executive and Parliament. It is not a new head of power, the latent power, or what I rather colourfully described as some sort of black box where in there we prise it open and there is some new powers that we did not know that existed on the formation of the Constitution, but suddenly in the last 20 years or so we have discovered them.

FRENCH CJ: The heads of power are not confined to heads of legislative power.

MR PAPE: No, they are not. In fact the judiciary, and indeed the point I make, the federal judiciary through the various Acts has to have some parliamentary support for what it does.

FRENCH CJ: That really depends then upon the range of the executive power of the Commonwealth.

MR PAPE: Yes, but that of itself does not get you anywhere because the Executive has got to go to Parliament to get the money.

GUMMOW J: But we have assumed it has, I think.

MR PAPE: If it has got it, it can spend the money in any way it likes consistent with its obligations and the order. How it goes about its task is not a matter for the Parliament.

HEYDON J: But your point is it can spend the money if it has to look to a federal law in accordance with a federal law which is a valid federal law pursuant to section 51 - if it is a legislative law. That is your point.

MR PAPE: Precisely.

FRENCH CJ: If it is not one of the enumerated heads such as tax or trade and commerce or external affairs, it would have to be found in 51(xxxix) and that would have to be incidental to - we get back to a component of the executive power and so the question then becomes if it is not found in one of the enumerated or specific heads of power it has to be found to be valid in the scope of the executive power itself. You talked about things like – did you mean the equivalent of the old prerogatives and so forth?

MR PAPE: Yes, it would have to be found there, but that is bearing in mind that it is - - -

FRENCH CJ: And that then gets us to the question, does the executive power extend to giving money to the people?

MR PAPE: No, it does not, in my submission, in the sense of it has to be incidental to some other activity and you have to read the Constitution as a whole, that is looking just at one power by itself. You cannot ignore the fact that you have got, dare I say, responsible government, that if the Executive wants to do that it has got to back to the Parliament. It cannot ignore - - -

FRENCH CJ: We have a legislative framework. It needs a law to do it because it cannot spend the money without a law on this hypothesis.

MR PAPE: Yes, and the point I make there, that where the benefit cannot otherwise be carried on or the relevant advantage achieved, that is the only role for the Executive. Here in this case, the benefit – as I have demonstrated, I would hope – that there is a mechanism to do that and that was just by granting a straight rebate of tax which the governments have done in the past, and successfully.

The other matters that I would take your Honours to, the external affairs power, or submission, and the trade and commerce power, I would adopt, with great respect, the submissions of the Solicitor-General for New South Wales. The other matter that I take your Honours to is this issue of standing. It is conceded, I think, by all my learned friends that I am standing in my own right. The question is as to whether I can seek a declaration that if the law is invalid, that it is invalid for everyone.

The point I make there is, in this case this is one which looks to, if the law is invalid for one, it is invalid for all. I cite the Auckland Harbour Case that for it to be declared invalid in respect of me and allow the payments to go to eight million Australians, would be an extraordinary situation where the Commonwealth would be sitting there saying, well, perhaps the Auditor-General says we should pay the money back. That would seem, as a matter of convenience, that the Court ought to exercise its discretion.

HAYNE J: It is not just a matter of convenience, Mr Pape, it is a question of the rule of law. It is absolutely root considerations of rule of law that would be engaged if that were the proposition that were being advanced, but we shall see.

MR PAPE: Yes. Well, that is the position I would put, your Honour. There are other matters which I will not go and elaborate on.

GUMMOW J: What about question 4?

MR PAPE: I am sorry.

GUMMOW J: The unhealthy question of costs.

MR PAPE: The question of costs? It is very kind of your Honour to ask that. Your Honour, in my submission, this is a matter that has been brought really – in other jurisdictions it has the flavour of a test case as to what the position is in relation to section 81. I would seek that on that basis each party would pay its own costs if I was unsuccessful.

FRENCH CJ: There is some discussion of it in the Full Federal Court in a case called Ruddock v Vadarlis (No 2).

MR PAPE: Yes. I will be frank with your Honour, I have not really considered - - -

FRENCH CJ: There was a cost issue in relation to the Tampa Case.

MR PAPE: Yes. I know the case, your Honour. That is the submission I would make, that it has a significant public interest and may I say I am indebted to the Court for agreeing to sit so quickly to hear this special case. It has wide implications. From 1945, 1975, 1988 the Davis Case and in the last 20 years the Commonwealth has branched out into lots of fields of activity which have never been challenged. In fact, the ordinary citizen of this country does not have, one would think, the right to challenge them. It just happened to be that this case was, to use the words of Sir Anthony Mason on special leave applications, a suitable vehicle. It came by and it looked as though it had possibilities and it has possibilities of testing it.

The section 80 point was there and it needs to be resolved. The ordinary citizen could not challenge, in my submission, as the way the law has been framed in the past, come and seek relief, as Mr Thorson did in Canada, and, indeed, the sort of thing which the former President of the Supreme Court of Israel, Aharon Barak, was talking about. The ordinary citizen had no right to do it. So a situation arose where, in fact, you might have that the very States may acquiesce to what the Commonwealth does; for example, Roads to Recovery, spending money. The ordinary citizen cannot seek the aid of the Commonwealth Attorney-General, as Justice Gibbs said I think in the Bateman Case; the Attorney-Generals of the respective States are not going to give any assistance. So it so happened

that there was a situation that arose in this case where the ordinary citizen had the opportunity to raise this test case.
The other issue, of course, is that if I am right and your Honours answer the questions the way in which I have suggested they should be answered, Parliament can do whatever it wants to do probably quicker than the way in which they are proposing to do it as at the present time, that by just passing an Act, allowing a rebate and varying the tax rates, the paymasters can start deducting the relevant deductions next week.

HEYDON J: Just one thing about your position on costs. If you get favourable answers to the questions, you will want an order for your own costs?

MR PAPE: Yes, thank you, your Honour. Those are my submissions, your Honours.

FRENCH CJ: Thank you, Mr Pape. Solicitor-General for the Commonwealth.

MR GAGELER: Your Honours, can I start with the legal and practical operation of the Tax Bonus Act. I then propose to move pretty much immediately to its justification as and incidental to an exercise of the power – and we do say it is a power – of appropriation in section 81 of the Constitution. That read with section 61 and the incidental power, which I will develop, ought to be the long and the short of the case or, using Mr Pape’s terminology, game, set and match. I will then move, if and to the extent necessary, to the justification for the Act by reference to other nominate and innominate sources of Commonwealth legislative power.

Your Honours, the Tax Bonus Act is in the book of legislation at page 4. It is short and its legal operation is for the most part uncontroversial. Section 3 provides that, “The Commissioner”, an executive officer of the Commonwealth, appointed by the Governor-General under section 4 of the Taxation Administration Act, “has the general administration of this Act”. Section 4 then gives some definitions, the critical one being “adjusted tax liability” which one finds in subsection (2).

FRENCH CJ: Does that section 3 have any substantive operation beyond attracting the characterisation of it as a taxation law?

MR GAGELER: No. Section 5 then identifies persons entitled to be paid tax bonus. The nature of that statutory entitlement is to be discerned from the scheme of the Act. Section 6 then identifies the amount of the tax bonus and section 7 is the relevant operative provision. It is expressed to be conditional on the Commissioner being “satisfied that a person is entitled to the tax bonus for the 2007-08 income year”, and it imposes on the Commissioner a duty to pay the person “as soon as practicable after becoming so satisfied”. The scheme of the Act, in our respectful submission, is relevantly unlike that considered in SCI Operations and relevantly like that considered in Peverill and the early case of Federal Commissioner of Taxation v Official Receiver. Those cases are all referred to in footnotes 4 and 5 of our submissions in-chief.

The scheme of the Act is that the entitlement identified in section 5 creates no debt, but within the scheme of the Act is translated into payment only by performance of the duty which is imposed by section 7 of the Act. The Act, in our respectful submission, creates no alteration of private rights. It involves nothing more or less than the imposition of a statutory duty on an officer of the Commonwealth to cause a payment to be made out of the consolidated revenue to specified persons in specified amounts and within a specified timeframe.

GUMMOW J: Would mandamus lie?

MR GAGELER: Yes, mandamus would lie.

FRENCH CJ: There is an anterior entitlement though, is there not?

MR GAGELER: Yes. What is the remedy for a person entitled? The remedy for a person entitled would be to seek mandamus. That is the analysis that is contained in Justice Brennan’s judgment in Peverill in respect of a very similar scheme dealing with Medicare entitlements and it was - - -

GUMMOW J: I think it is also in the Royal Insurance Case, is it not?

MR GAGELER: The ability to seek mandamus? Yes. But the Royal Insurance Case, I think, refers back to the Federal Commissioner of Taxation v Official Receiver [1956] HCA 24; 95 CLR 300, the particular passages, which I do not propose to read, being at the bottom of 311 and the top of 324 and in Peverill [1994] HCA 8; 179 CLR 226 at 242 to 243 the analysis of Justice Brennan where he picks up really the critical passage in that early taxation case. If your Honours are looking at that, the most pertinent passage is - - -

GUMMOW J: Justice McHugh and I were not all that attracted to this.

MR GAGELER: In SCI Operations [1998] HCA 20; 192 CLR 285, what your Honour said at page 313, paragraphs 64 and 65 - in paragraph 65, your Honours take as the - - -

GUMMOW J: The answer seems to be common law thought about this a long while ago, and the answer is Shepherd v Hills, what Baron Parke said, without worrying about mandamus.

MR GAGELER: If your Honour looks at what you said in paragraph 65, after setting out - - -

GUMMOW J: Anyhow, do not waste time on it now. All I am putting to you is Hills v Evans slid by unremarked in the earlier cases.

MR GAGELER: Yes.

GUMMOW J: It seems to me, as it seemed to a good lawyer like Justice McHugh, that that was the first stop.

MR GAGELER: I will just point out the second sentence after the quotation in paragraph 65 of your Honour’s judgment.

HEYDON J: It is a bit hard to do, because that is not on your list, I think.

KIEFEL J: You might have to read it out for us.

HEYDON J: We do not have that volume before us.

MR GAGELER: This is [1998] HCA 20; 192 CLR 285 at paragraph 65. The general rule is stated in terms of an entitlement to be paid money under a statute creating a debt. It is said that that rule applies in the absence of some indication to the contrary, and then the next sentence is:

In particular, the duty or obligation is not preconditioned by the exercise of an administrative discretion or the formation of an opinion which would attract judicial review.

That was suggested in that case as something that did not count to the contrary, the point being that the obligation to pay being preconditioned by the exercise of an administrative discretion - - -

FRENCH CJ: But anterior to that is the entitlement, that is the point I put to you earlier. Is that meaningless, is it?

MR GAGELER: It is not meaningless at all; it is the trigger for the payment of the tax bonus. It is the trigger for - - -

FRENCH CJ: It is more than a trigger; it is statement by law of an entitlement.

MR GAGELER: The question then becomes what is the nature of that entitlement? It is an entitlement which is reflected in the performance – and only in the performance – of a public duty. That is the point.

KIEFEL J: Does it matter if it is enforceable in one way or another?

MR GAGELER: It is enforceable by mandamus. It does not matter hugely, but the critical point is that the operative provision of the Act is really section 7. A person who claims to be entitled would have standing to bring mandamus to compel the duty imposed by section 7.

Your Honours, can I then turn immediately to Mr Pape’s argument that it as a matter of construction there is simply no appropriation at all. Our response in principle is as follows. An appropriation which is referred to in the Constitution in sections 53, 54 and 56 in procedural provisions, an appropriation that is permitted by section 81 and that is required by section 83 is nothing more or less than a statutory authority for the Executive to withdraw money from the consolidated revenue fund and to apply that money for a particular purpose. That statutory authority can be express or implied. The cases in support of that are in footnote 3 of our submissions in reply.

GUMMOW J: This is the corrected version?

MR GAGELER: I think it was in the uncorrected version.

HAYNE J: It is rather difficult to read when they are not marked up, Mr Solicitor, and it is unfortunate that the Commonwealth should file it unmarked up.

MR GAGELER: I will take that on board, your Honour.

HAYNE J: I thought you were asked to have that done, perhaps I am mistaken.

MR GAGELER: It was a difficulty of timing, your Honour, nothing more than that. The other point to make is that the statutory authority that is an appropriation, outside an appropriation for the ordinary annual services of government, is something that can be either general or standing or particular or special. Those terms, your Honours will recall, are explained in Brown v West 169 CLR 195 by reference to parliamentary practice. The particular passage explaining that terminology is at 207 to 208.

Here we would say that if it is necessary to do so, one can imply statutory authority to withdraw money from consolidated revenue for the purpose of paying the tax bonus simply from the existence of the statutory duty imposed on the Commissioner to pay the tax bonus, but it is not necessary to do so because the effect of section 3 is to bring the payment required by section 7 within the standing appropriation in the Taxation Administration Act. The Taxation Administration Act your Honours see at page 28 of the book of materials. Section 16 is in quite clear and precise and applicable terms. At page 30 it provides in subsection (1), omitting presently immaterial words:

Where the Commissioner is required or permitted to pay an amount to a person by or under a provision of a taxation law . . . amount is payable out of the consolidated Revenue fund, which is appropriated accordingly.

Taxation law is defined in the Taxation Administration Act at page 29 to have the meaning given by the Income Tax Assessment Act and within the Income Tax Assessment Act at page 37 – the extracts from the Act begin at page 35 but at page 37 – “taxation law” is defined to mean “an Act of which the Commissioner has the general administration”. As I said in answer to your Honour the Chief Justice, there is no purpose in section 3 of the Tax Bonus Act other than to act as the trigger for section 16 to be invoked as the applicable appropriation.

GUMMOW J: 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.

MR GAGELER: Yes. It is probably not necessary for any constitutional purpose to resolve that dispute, but section 7 of the Tax Bonus Act, in our submission, identifies the purpose and the amount of the appropriation. It is therefore necessary to read section 16 together with section 7 to find the purpose for the application of section 81 and section 83 of the Constitution.

HAYNE J: That proceeds from a premise about what form a standing appropriation should take, in particular, whether a standing appropriations purpose is sufficiently stated in terms of the kind found in 16(1) and whether a standing appropriation requires identification of an amount. Are those matters that we need to get into in this?

MR GAGELER: You absolutely do not, because if it is necessary to read section 7 with section 16, then section 7 itself was a provision that complied with all the procedural requirements for an appropriation. That is, it originated in the House of Representatives for the purposes of section 53 and it was preceded by a message from the Governor-General as required by section 56. Your Honours will see that message in the defendant’s materials, tab 14 at page 281, so the point is one does not need to resolve any potential controversy of that nature. If it is necessary to read section 7 with section 16, sections 7 and 16 together comply with the requirements for an appropriation.

HEYDON J: Are you going to deal with the argument based on the explanatory memorandum of 1984, Mr Pape’s second point, I think?

MR GAGELER: We have dealt with that quite specifically in writing, but our response to that is that the explanatory memorandum does not confine the Act. The explanatory memorandum in any event does not indicate any particularly narrow parliamentary intention at the time that section 16 was introduced because it refers to “and related purposes” without expanding upon that. Therefore one just simply does not read down section 16, but even if section 16 were to be read as having a narrow operation when enacted, section 16 is impliedly repealed or expanded by section 7 because the purpose – I am sorry, by the Tax Bonus Act, section 7 read with section 3, the purpose is quite clear.

Can I turn then from the legal operation of the Act to its purpose or practical operation, and I am using those terms interchangeably, as did Chief Justice Brennan and did Justice Dawson in Leask. I will just give your Honours the reference[1996] HCA 29; , 187 CLR 579 at 591 and 603, and I am using the terms interchangeably simply to refer to what the law does in fact, or more precisely, what it is designed to do in fact.

To understand what the Tax Bonus Act is designed to do in fact, one needs to recognise certain things that flow from its legal operation. One is that section 5 identifies in aggregate 8.7 million taxpayers; another is that section 6 refers to an aggregate amount of some $7.7 million and section 7 requires a one-off payment which, when account is taken of the Tax Bonus for Working Australians (Consequential Amendments) Act (No 2) 2009 is a tax bonus which is tax free which cannot be set off by the Commissioner against an existing tax liability.

FRENCH CJ: It also does not impact on benefit entitlements, is that right?

MR GAGELER: That is the third point. It does not impact upon social security entitlements. The context for an intention behind making a payment of that kind is that identified in the explanatory memorandum that your Honours see at page 17 of the book of legislation, about the middle of the page, paragraph 1.3. I should point out this explanatory memorandum, if your Honours turn back to page 13, is the explanatory memorandum in the House of Representatives for the Bill as introduced on 12 February and your Honours will see from the second reading speech on that day, which is at page 25 of this bundle and continuing over to page 26, it was a Bill introduced into the House of Representatives in a modified form after the original Tax Bonus for Working Australians Bill had been rejected in the Senate. The original Bill was introduced on 3 February and the re-worked Bill was introduced on 12 February.

CRENNAN J: That is why it is No 2.

FRENCH CJ: It was not sent back with a message of - - -

MR GAGELER: No. Page 17, then:

These Bills give effect to the Government’s Nation Building and Jobs Plan announced on 3 February 2009. The plan was introduced to assist the Australian people deal with the most significant economic crisis since the Second World War and provide immediate economic stimulus to boost demand and support jobs. This measure, at a cost of $7.7 billion, provides financial support to around 8.7 million taxpayers.

The Nation Building and Jobs Plan your Honours will find in the special case book at pages 247 to 250. There are two sets of numbering. I am using the numbering at the top right-hand corner. What you see at page 247 is a media release which sets out as at 3 February the $42 billion Nation Building and Jobs Plan. There is a reference at the bottom of that page to the global recession which is explained in the next few paragraphs. It is said, before one gets to the global recession, at page 247 at about line 40:

The initiatives in the Nation Building and Jobs Plan will provide a boost to economic growth of around ½ per cent of GDP for 2008-09 and around ¾ per cent to 1 per cent of GDP in 2009-10.

By investing in jobs and long term economic growth the Plan strikes the right balance between immediate support for jobs now, and delivering the long term investments needed to strengthen future economic growth.

FRENCH CJ: This release is one of the documents that forms part of the statement of agreed facts. How are we to treat it?

MR GAGELER: You treat it as the best evidence of what the economic circumstances are that existed at the time the Act was introduced and enacted, and you treat it as indicating the best evidence of the likely effect of the stimulus package of which this $7.7 billion payment forms a part.

KIEFEL J: What is that effect, do you say? What are we to take from – I am not asking you to say – the documents before us?

MR GAGELER: You are to take a number of things. You are to take the likely effect on gross domestic product. You are to take the economic circumstances that brought about this plan, that is, the global economic crisis, and the need recognised internationally and nationally for a fiscal stimulus to deal with it and a need to provide the fiscal stimulus in a timely manner. I will come to the detail of that in a moment.

HAYNE J: We are to do that by the process identified in rule 27.08.5, are we, as a process of inference from the documents as would be available at trial?

MR GAGELER: Yes, you can do that. We would probably be more inclined to rely on the more generous approach to discerning constitutional facts identified by Justice Heydon in Thomas v Mowbray 233 CLR.

GUMMOW J: What is the relevant constitutional fact, that all these things are in fact likely to happen, or that – or all these things are likely to happen or have happened or are happening, or that as is indicated by the explanatory memorandum there has been a formation of opinion first by the Executive and second by the Parliament, reasonably formed and not disputed that this is so and they are matters of political judgment, reasonably formed?

MR GAGELER: Your Honour, because there are different powers at play, or potential sources of power in play, the constitutional facts are just slightly different for each source of power. They are slightly different for the external affairs power and slightly different for the trade and commerce power, but I will need to come to each of those in due course.

GUMMOW J: I was thinking of section 61.

MR GAGELER: Section 61, yes.

HEYDON J: When you say the best evidence you mean the best evidence before us as distinct from the best possible evidence, I take it?

MR GAGELER: I put it as high as the best possible evidence, your Honour.

HEYDON J: Well, I think I would have to disagree with you about that.

MR GAGELER: But certainly the best evidence before you.

HEYDON J: We could go to Court 3 and someone could go into the witness box there.

MR GAGELER: None of this is disputed.

FRENCH CJ: That is why I was trying to find out what was actually agreed at the beginning because the agreements relate to things said and to a degree, a very limited degree, to existing facts.

MR GAGELER: Yes. Your Honours will see what is involved. At page 248 about line 20 there are some certain long-term strategies involved. At page 249 that is long-term spending, and then at page 249 there is a heading “Immediate Stimulus to Support Jobs and Economic Growth” and what is there said is that:

Targeted bonuses to low and middle income households will provide an immediate stimulus to the economy and support Australian jobs.

GUMMOW J: In fact, it may not do so at all. Ten years from now people might be looking back chuckling, but that is why I asked you what the necessary constitutional fact is.

MR GAGELER: Nobody can be sure that – as I will show you – this is based on economic modelling and it is based on the best macroeconomic analysis. Nobody can be sure. There is then some fact sheets referred to at the bottom of the page. One of those fact sheets is a $950 tax bonus for working Australians.

GUMMOW J: No, I was not asking you about the present situation, I was asking you about the efficacy of the purpose to select it to meet it. It may be completely inefficacious for all one knows. What is the possible significance of that?

MR GAGELER: Of it being inefficacious?

GUMMOW J: Yes.

MR GAGELER: It would only be possibly relevant, and I would argue against it being relevant, to the trade and commerce power, that is all. The fact sheet your Honours will see at page 231. This is updated as at 13 February, that is after the enactment of the Act. You see at page 232 it is said that fundamentally the reduction in the amount in the Act as enacted from that which as originally proposed does not make any fundamental difference. That is lines 10 through to 20 on page 232.

The design of that plan is more fully spelt out in the Updated Economic and Fiscal Outlook of the same date, that is, of 3 February. Your Honours see that at pages 27 to 104. At page 29 in the “Foreword”, that document is identified at about line 15 as being “consistent with the Charter of Budget Honesty Act”. That is a document that your Honours have in the defendant’s materials at tab 6 and the Updated Economic and Fiscal Outlook is consistent with that Act in two ways. One is, if your Honours turn to page 68 behind tab 6, your Honours will see certain principles of fiscal management which are identified non-justiciable, as is made clear by the body of the Act and, if your Honours turn to page 72, those principles are fairly clearly spelt out.

Then within the remaining body of the Act, particularly within Part 5 that begins at page 76, what is required is regular annual and mid-year reporting to the Parliament. This Updated Economic and Fiscal Outlook is not required by the Act, but it is consistent with the Act in the sense that it updates earlier documents required by the Act. At page 41 of the special case book there is a short description of the Nation Building and Jobs Plan. Your Honours note and I will not read the second paragraph at page 41.

FRENCH CJ: This is a statement by the Treasurer and the Minister for Finance and Deregulation?

MR GAGELER: That is correct, yes. Page 41, the second paragraph, the fourth paragraph and the fifth paragraph beginning, “The plan is a rapid response”.

The deteriorating global economic conditions and their impact on Australia are described at pages 43 and 44. There is an explanation of the design of the “Nation Building and Jobs Plan” at pages 45 to 48. These are important and may I just spend a moment on them. It is said at page 45:

In normal times, monetary policy is the main tool for stabilising the economy. But these are not normal times. Extraordinary times call for extraordinary macroeconomic policy measures . . .

The extraordinary speed and scope of the deterioration in the global economy means that there is a much greater macroeconomic stabilisation role for discretionary fiscal policy than would normally be the case . . .

Well-designed discretionary fiscal policy should work in conjunction with monetary policy to provide an immediate boost to demand. The most effective fiscal policy measures to achieve this in the current circumstances are those that can be implemented quickly and are targeted to those who are most likely to spend additional income.

Like the Economic Security Strategy, the Nation Building and Jobs Plan includes measures that can be implemented quickly, so that it will support growth through to June 2009, and has been targeted towards those low- and middle-income households who are most likely to spend additional income –

GUMMOW J: What page is this, Mr Solicitor?

MR GAGELER: This is page 45 at about line 25:

who are most likely to spend additional income and who are most vulnerable during an economic slowdown. To the extent that these payments are saved rather than spent immediately, they will accelerate balance sheet repair and underpin consumption over time.

Where the economy is confronted with a more severe and prolonged downturn as a result of significant external shock, well-designed discretionary fiscal policy can add directly to aggregate demand through direct government investment in the economy (for example, on capital works) that are able to be implemented quickly.

Across the page at page 46 it is said:

For discretionary fiscal stimulus to be effective in boosting the economy, there are several challenges to meet -

I will take your Honours to the boxed discussion in a moment:

It is common to refer to the criteria of ‘timely, temporary and targeted’.

Then there are three dot points:

Measures need to be implemented swiftly so that the boost to demand occurs when it is most needed. In the current situation, this means including measures that take effect in the first half of 2009.

The boost needs to fall away over time so that it no longer operates when it is not needed. Locking in long-term spending poses risks for inflation -

The third point is:

Spending needs to be targeted carefully so that it maximises the impact on GDP growth.

Then two paragraphs further on there is a reference to the need for co-ordinated global action.

The best practice in fiscal policy then occurs at page 47. Your Honours have a rather bad print at pages 47 and 48. It is reproduced in the defendant’s materials behind tab 5, pages 60 to 61, if that is of assistance. There are some economic terms that are used which are defined in the extract from the Oxford Dictionary of Economics that we have given your Honours behind tab 12. It is important to understand what fiscal policy is and it is important to understand what aggregate demand is and it is important to understand what the multiplier effect is. What one sees in relation to the best practice in relation to fiscal policy at page 47, or at page 60 if your Honours are looking at the other print, it is said that studies in the United States:

suggest that fiscal expansions have a multiplier effect on aggregate demand and output –

It refers to Treasury modelling. That is why I am saying it is the best evidence that is available and it is said about the middle of the page:

Where an immediate boost in demand is required, the most effective fiscal policy measures are those that can be implemented quickly and targeted to those who are most likely to spend additional income (that is, liquidity constrained households).

Two paragraphs further on:

In the current environment, the IMF concludes that this uncertainty provides a strong argument for policy diversification –

That is a range of fiscal measures. It is said in the last paragraph:

In practice, the relative strengths of different arms of macroeconomic policy . . . mean that a combination of measures is likely to be the most effective - - -

FRENCH CJ: I am not sure that dictionary definitions are the best way to get a grasp of the economic concepts involved if that is what is expected. Anyway, it may be that it is not necessary to get into that.

MR GAGELER: Probably not. It is sort of first-year Keynesian macroeconomics, your Honour.

FRENCH CJ: Yes, I have heard that before. Usually from economists trying put cross-examiners down, Mr Gageler, as you might recall. It might be appropriate now to adjourn. The Court will resume on this matter at 10.15 am, but the Court will otherwise adjourn until 9.30 am tomorrow morning.

AT 4.21 PM THE MATTER WAS ADJOURNED
UNTIL TUESDAY, 31 MARCH 2009