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Thursday, 28 May 1942

Mr MENZIES (Kooyong) .- The proposals now before the House are of far-reaching importance. In one aspect, they are of revolutionary importance. They affect the whole of the relations between the Commonwealth and the States in time of war, and perhaps also in time of peace. Consequently, I desire to do what other honorable members have done, namely, address myself to the. subject with due gravity. Aa a first-elam problem, it merits first-class consideration. A good deal has already been said by different honorable members concerning their general picture of what the Australian Constitution ought to be. We have had an extraordinarily interesting speech from the honorable member for Bourke (Mr. Blackburn), speaking against the bill, but as a man who believes - as' I understand him - in full legislative powers for the Commonwealth Parliament. We have had speeches from this corner of the House, from some of my friends from South Australia in particular, delivered for the most part from the point of view of persons who are not favorable to full legislative powers for the Commonwealth. My own view in respect of the general matter may be stated very briefly.* I do not want to argue it, because it does not seem to be entirely material to the bill ; but if I had to sum it up, I should say that, in the first place, it seems to me that in Australia there are certain things which, constitutionally and from a government point of view, are very desirable. The first is that there shall be a new Constitution. I have arrived at that conclusion after years of experience in both State and Federal politics. I look forward to the time when, in Australia, we shall have a new Constitution, if possible on the South African model; because I believe, not in the abolition of State Parliaments - it would be absurd to think of all law-making and all administration being centred in this capital - but in a system of government in which there would still be State legislatures - as there are in South Africa - yet in which the Commonwealth Parliament would have general legislative authority. Paradoxically, I consider that we shall never achieve complete ease in the decentralization of functions in Australia until we have a high degree of centralization of power.

Mr Calwell - Paradoxically, the right honorable .gentleman is preaching Labour policy.

Mr MENZIES - I am preaching my own policy, and I did not obtain it from a platform that was provided for me. I have arrived at it by a slow progression over a considerable number of years. In the second place, I believe - and this does not involve a constitutional change - that as part and parcel of some such idea there should be a very considerably enlarged Commonwealth Parliament; because I consider that an enlarged Commonwealth Parliament would produce greater resources administratively, and in the long run would have greater authority in the electorate. In the third place, 1. believe! - and I come now to a point a little nearer to the matter under discussion - that there should be the fullest access by the Commonwealth Government and Parliament, which are charged with the conduct of the war, to the financial resources of all Australians, wherever they ma.y live. That is a very sound principle; and it is none the less sound because. m a general way, I take it to be the principle which the Treasurer (Mr, Chifley) had in mind when he approached this problem. It is a principle fr:m which I do not dissent. In the fourth place, I should be prepared to subscribe to the principle of uniform taxation for uniform purposes. I make (bat qualification, because it seems to me idle to talk about uniform taxation when taxation can never be separated from the purposes for which it is raised; and the purposes for which the taxation now proposed to be raised will be spent are not uniform but, in fact, vary as between State and State.

Mr Rosevear - Then there would never be uniform taxation.

Mr MENZIES - There would; because, if we had a central legislative authority in accordance with the first principle I have set out, we should be able to have uniform taxation, and taxes would be raised for purposes that were essentially uniform. Having stated those four points, let me say that not one of them solves the problem, but that each merely propounds a problem. I emphasize that, because I point out that the problem before this House is not by any means solved by the statement of any honorable member, "I believe in uniform taxation ". The problem is, how to achieve uniform- taxa tion. Consequently, the question before this House is wholly one of method, not of objective. That statement, I put it to honorable members, is very much reinforced when one recalls that the scheme before us, whilst professing to achieve uniform taxation, does not, in fact, achieve, anything of the sort. What it does, is to add a non-uniform State contribution to a non-uniform Commonwealth contribution, and to take the necessary steps in order to see that the sum total of those two elements in each State is the same. That is not uniform taxation: it is a combination of two entirely non-uniform elements. Let us take, for instance, the Victorian taxpayer, exemplified by my friend the honorable member for Melbourne . (Mr. Calwell) - if I may select him. He pays the same total tax as the New South Wales man with the same income; he receives the same measure of defence - because defence is nationally, not parochially, disposed ; he receives less of State and other social services, consequently, by a process of subtraction, he pays more than the corresponding New South Wales man for the degree of defence which both enjoy in common. I say at once to the Treasurer that it is extremely difficult to avoid such anomalies. I do not know that any scheme may be devised in Australia, short of complete unification, which will get rid of those anomalies. I mention them merely in order to point out that the use of the expression "uniform taxation " as a justification for these measures is merely the use of a piece of rhetoric, which is not a substitute for accurate argument. The real, immediate question, is not to be solved by reference to either the general principles with which I began, or the particular criticism that I make of the phrase "uniform taxation"; because, from the point of view of practical government at a time like this - and that is what every government must be concerned with - the question is whether .the scheme is as good a practical attempt as possible to simplify taxation, and to equalize the contributions of citizens. After a great deal of thought on the matter I have reached the conclusion that the question cannot be answered " Yes ", but that it should be answered " No ", and there are two principal Teasons for nay coming to that conclusion. I believe that .this is not the best 'practical way to achieve 'the desired result, because I believe that the ,best practical means were those embodied in the Fadden budget of last year. The Leader of the Opposition. {Mr. Fadden), when Treasurer of the Commonwealth, proposed to the State Premiers that they should vacate the field of income tax in favour of the Commonwealth. He thereby recognized the authority of the State governments within their own domain, and asked them to enter voluntarily into an arrangement with the .Commonwealth by which they would go out of the income tax field, and the Commonwealth would come in to -the extent that the field was thus -vacated. The Premiers, with one exception, said that they would not agree. Subsequently, the right honorable gentleman, as Prime Minister, .approached the problem again, and asked himself what was .the best course to pursue in the absence of an .agreement with the States. He produced a carefully worked out budget providing for a system of post-war credits which recognized the inequalities of State taxation, and rectified them as far as possible by giving varying -rates of most-war credits to the taxpayers in the various States. Tn my opinion, the right ^honorable gentleman acted with .correctness and wisdom, and I see no occasion whatever for deserting a well-considered scheme of the kind which he put before Parliament last year. I do not propose to do so. I believe that his plan was the better one, and I maintain my right to say that I want that plan rather than the one which is now before "the Bouse. .1 mow come to my second reason for disapproving of the Government's proposal, and I approach the matter with a good deal of diffidence, because this dwelling upon technical considerations is ian ill business. However, my second reason is that I .have the gravest doubt of the 'constitutional validity of the Government's plan. I do not make that statement lightly. On the whole, I regret that the Prime Minister has not thought fit to table the opinions obtained by the Commonwealth (Mr. Blackburn)., though in one or two places our lines of argument may vary. All views on this subject must, of course, be tentative, because, in the last resort, no one will know what the constitutional position is until the High Court has spoken. The line of High Court decisions on the Constitution has never been constant. T-n the course of my preparation on this matter, I had occasion to loot up a famous decision given by the High Court about twenty yeaTS ago upon what is known as the Engineers' case. At that time, I was, as honorable members opposite will be pleased to know, appearing before the court as the representative of the engineers. In that decision, the High Court of Australia reversed practically the whole of its previous decisions on the relations between the Commonwealth and the States. Therefore, I speak as every lawyer must speak - tentatively and with diffidence - .but I make bold to take up the time of the House because, as honorable members know, I have myself had considerable experience of constitutional matters before the High Court

Now, what is the substance of the Government's .scheme ? That is the first question which any lawyer must put to himself, and the .court must put to itself. Under the scheme, it is first proposed to have a uniform, single income tax in Australia. In the second place, the scheme provides for the distribution of a part of the proceeds of the tax by way of financial .assistance to the States 'each State's allowance being calculated by a Deference to its income tax revenue over two selected years. In the third place, tie scheme proposes a penalty so great- as to 'be prohibitive upon the imposition of a State income tax, and it- compulsorily transfers aH State income- tax departments and records, to the Commonwealth..

Honorable members 'will' note that I. describe it as a penalty on the imposition of a State income tax, and a little reflection will' show that that is so. If the Government of Victoria decided, notwithstanding this scheme, to impose a State income tax, it would forfeit over £6;000j000 which it would otherwise collect from the Commonwealth. In other words, it would be fined £6,000,000 for exercising- its taxation powers; Every time a notion- exists that it would be illegal to do: something -directly, the in.stinct of the draftsman - and I speak with great respect of the Commonwealth Parliamentary Draftsman, who laboured valiantly with me for some years - is to< ask himself how he car get round the difficulty: Can he do indirectly what perhaps he would not be allowed to- do directly ? This instinct is a healthy one, and I would be the last to condemn it. If you cannot go over a hill',, it- is sometimes desirable to go round it, but you are always forced to come back to this consideration : The real test of the validity of amy law is. not the wording of the- law, but its: substance. That is a principle which has been, well established for many years. It was the principle upon which the High. Court of Australia disallowed the "new protection" 3'5 years ago, because the learned judges declared that it professed, on the face of it, to be an excise- law, whereas- it was in reality an- industrial law.

The last example of that interesting principle: may be of interest to honorablemembers. It arose from action taken by the province of Alberta, in Canada, of which we have heard, and of which the Minister for- War Organization of Industry (Mr. Dedman) certainly- has heard. The- province of Alberta, acting, as it conceived, under the powers given, to the provinces in the Canadian. Constitution which is embodied in the British North America Act, set out to impose a tax on banks. That tax was very heavy indeed. The province sought to upholdit by declaring that it was a tax " in order- to the> raising- of' a revenue for provincial1 purposes ". The Government of Alberta-, said in effect, ":We have a- perfect right to- impose a tax- to raise revenue- for' provincial purposes. This! is-, a tax which will raise revenue, and the province willget it. Therefore, it is fo* provincial purposes."' The- Privy Council, agreeing- wit]]the. Supreme Court of Canada, came- to the conclusion unanimously that-; Enoughit a-p-pea-red to be a tax on- banks- for thepurpose of raising' a- revenue, it was, intruth and in* fact, designed to prohibit the operation- of banking, because it was a prohibitive tax. Therefore1, the- law was invalid^ because the province had nopower to- ma'ke- a law that prohibited the carrying on of banking within its boundaries'. That case, decided1 as recently as 1939, is- a- very modern and excellent example of the: principle, to which I have referred. That is- the sub- stance of this scheme.. Whatever the: form, of words we may use, this scheme is designed, among other things, to prohibit,, in fact,, the exercise by the States of their existing power to impose an income tax. Is that valid? That,. I believe, to be- the short- question. I only wish that the short question would admit of an equally short- answer. In one sense, the answer may be, " I do not know ", because nobody yet knows- it. But in the other sense, I must discharge what I believe to be my responsibility to the House, by endeavouring to- give some indication- of the answer to- that question, " Is- it valid? " All honorable members,, particularly those who- think that the. problems of the 'Constitution are only for lawyers, should occasionally read the Constitution.

Mr Calwell - Lawyers get most out of it

Mr MENZIES - They do; that is a most unhappy truth. Yet the Constitution, as the frame of government in this country, the charter under which, this Parliament and the- State Parliaments exist,, merits a great deal of thought and study by all honorable members. I remind, the House, at this juncture, of some of the leading- provisions. If honorable members will read what are commonly called the " covering clauses " of the- Constitution, they will find that what was established was- a Commonwealth,. and that the Commonwealth was to consist not only of the Commonwealth in the sense in which we use the term to-day, but also of certain States. In other words, it was a federal system. I have already indicated that I should prefer to see, in due course, another system, but for better or worse, the present system is a federal system. We have a Federal Parliament and State Parliaments, Federal powers and State powers, and co-ordinate authorities, each issuing orders to the private citizens. Turning from that to the Constitution itself, we find that the Commonwealth Parliament is set up, and the legislative power is vested in it. Section 51 contains, for the most part, the powers of this Parliament. I propose to refer to three of them, and I direct attention to the language that is used -

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

(ii)   Taxation; but so as not to discriminate between States or parts of States.

(vi)   The naval and military defence of the Commonwealth and of the several States . . .

(xxxix)   Matters incidental to the execution of any power vested by this Constitution in the Parliament

The taxation power is not limited in terms in placitum (ii), except that there shall be no discrimination between States and parts of States, but it is limited by the opening words of the section. The taxation power, in other words, is to be exercised " subject to this Constitution ", and within the limits of a law for the peace, order and good government of the Commonwealth, not of the States. After that, the Constitution proceeds to do one or two things which have a great bearing on this problem. So far, all those powers in section 51 have been stated as powers given to the Commonwealth, not as powers taken from the States. As the lawyers say, they are " concurrent powers concurrently exercised by the Commonwealth, and they have a paramount operation by virtue of section 109. Section 52 gives to this Parliament three exclusive powers. One of them is to make laws with respect to the Seat of Government; another refers to the transferred Public Service departments; and the third relates to " other matters declared by this Constitution to be within the exclusive power of the Parliament ". Section 90 makes exclusive the power to impose customs and excise duties and to pay bounties. There we have a little group of exclusive powers, expressly so declared by the Constitution. Unless the Constitution so provides, all the other powers in this Constitution are not exclusive, but concurrent. I say that subject to one comment. In the Josephs case during the last war, three judges, including Mr. Justice Isaacs as he then was, came to the conclusion that the defence power was an exclusive power.

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