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Thursday, 28 May 1942


Mr CURTIN - Although it was not contained in the list of exclusive powers ?


Mr MENZIES - The judges said that it was, because the Defence Department was one of the transferred departments. For that reason, Their Honours declared that it was an exclusive power. With very great respect to those three learned judges, I find difficulty in accepting that view. I do not believe that the defence power is an exclusive power, and I consider that abundant support for that opinion is to be obtained from section 114 of the Constitution, which expressly provides that a State shall not, without the consent of the Commonwealth, raise any naval or military force. Why we should need to prohibit a State from raising a military force if the defence power were an exclusive power to the Commonwealth, I cannot understand. I shall one day be very interested to see whether the High Court follows the decision in the Josephs case on that point. That, however, is probably by the way. Then, section 96, which is one of those relied on by the Government, provides for the grant of financial assistance to the States. Let me say at once that, although the taxation power cannot be used in a discriminatory fashion, because section 51 says so, section 96 can be used discriminatingly. There is no prohibition of discrimination in section 96. The Privy Council made that abundantly clear, if it needed to be made clear, in the flour tax case, Moron's case two years ago. Then, section 99 - I refer to this; I shall not go back to it again - provides that -

The Commonwealth shall not by any law or regulation of trade, commerce or revenue, give preference to one State or any part thereof over another State or any part thereof.

I.   do not rely on that for the purposes of the view that I am now putting, because I do not know that by any law or regulation of trade, commerce or revenue, the Commonwealth Government has given preference to one State over another. My view on that can be summed up thus : 1 do not find in this scheme any discrimination in point of Commonwealth taxation. Therefore, there is no violation of the later words of section 51 ii. I think there is discrimination in the matter of grants or reimbursement, but section 96 does not prevent it. Therefore, I do not rest my opinion on discrimination, although I notice that some lawyers, whose opinions are entitled to weight, did rest their opinions on that. I have said that there are two sections in the Constitution which deal with the position of the States, section 106 and section 107. Section 106 provides - and I emphasize these words - that -

The Constitution of each State of the Commonwealth shall, subject to this Constitution, continue as at the establishment of the Commonwealth or as at the admission or establishment of the State as the case may be until altered in accordance with the Constitution of the State.

Section 107 says -

Every power of the Parliament of a Colony which has become or becomes a State shall, unless it is - by this Constitution exclusively vested in the Parliament of the Commonwealth

Nobody could suggest that the taxation power is exclusively vested in the Parliament of the Commonwealth - or withdrawn from the Parliament of the State, continue as at the establishment of the Commonwealth or as at the admission or establishment of the State as the case may he.

There we have the clearest possible statement. We are giving a series of powers to the Commonwealth, some exclusive and some concurrent. Where the power is exclusive the State cannot make a law. AVI) ere it is concurrent the State can make a law; there may be conflict, and, if there is, what can happen? That is answered by section 109, which pro- vides -

When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail and the former shall, to the extent of the inconsistency, be invalid.

I apologize for having taken up the time of honorable members, but what I have said gives, within a brief compass, a sketch of the relevant provisions of the Constitution, and that enables me to ask my first question: Is this proposed law, which prohibits the imposition of an income tax by a State, a law with respect to taxation within the meaning of the Commonwealth Constitution? Now, as to that, I have no hesitation whatever in saying that in my opinion it is not. And there is an abundance of authority to support that view. I have three reasons for saying that it is not, and I shall mention each of them quite briefly. In the first place, the proposed law in this case is, in my opinion, not made for the peace, order and good government of the Commonwealth with respect to taxation. It seeks to impose a tax partly for Commonwealth purposes and partly for State purposes.


Mr Curtin - Does the right honorable gentleman not regard the revenue raised under the provisions of section 96 as revenue raised for the Commonwealth?


Mr MENZIES -I do not, in point oi substance, because I believe that in that case the transaction is merely colourable. I would find it difficult to stand up before any tribunal and argue that those sums were raised, not for State purposes, but for the purposes of the Commonwealth, those purposes being that the Commonwealth should then hand the money over to the States. Any tribunal would say : " You have raised this money for the States


Mr CURTIN - To discharge functions, for example, education, which it is not practicable at present for the Commonwealth to discharge.


Mr MENZIES - Exactly; in other words, to discharge State functions - moneys raised for the express . purpose of being paid to the States for the discharge of State functions. I am at a loss to understand how that is a Commonwealth taxation law at all. It is not a matter which merely rests upon my unaided view, (because I am happy to say that this problem was very closely considered by at least two learned judges. Although the matter was not strictly necessary for the decision of the case, in West v. the Commissioner of Taxation, on which the question was whether the States -could tax pensions paid under the Commonwealth Superannuation Act, the matter was looked at by His Honour Mr. .Justice Evatt and also by His Honour Mr. Justice Owen Dixon. J[ say with infinite respect that «ach of those learned judges was a man of very special and outstanding -knowledge of constitutional problems. His Honour Mr.. Justice Evatt -said this - .. . . nor can the power of the Commonwealth Parliament under section 51 (2) to .make laws with respect to taxation assist, because that power relates only to taxation by the Commonwealth for the purpose of its raising -a Commonwealth revenue. lie went on to quote with approval some words written by .Sir Robert Garran in The Case for U.n&on at the time of the secession trouble in Western Australia. He quoted this passage with respect to taxation - .It can hardly be questioned that these words refer only to Commonwealth taxation uniform throughout the Commonwealth for Commonwealth purposes and do not cover control of Stasias taxation. " Do not cover control of State taxation"! That passage -from Sir Robert ©arras's argument made a profound impression "upon Justice Evatt's mind because, in a subsequent case, he came back to it and referred to it, as the learned and honorable member for Bourke will remember. Subsequently, in the same judgment, lie said -

Ne doubt the decision to reject the general rule of .mutual immunity of 'instrumentalities which was a .rule which provided for mutual non-interference, the State with the (Commonwealth and the 'Commonwealth with the State, a doctrine which was rejected in substance in the Engineers' case - was a wise one .and it must be followed .by us. But .ii is quite erroneous to regard the engineers' case as having established a new and valid -constitutional principle under which- let me emphasize these words - either by direct declaration as to the termination 'of specified State legislation, or as to the Stated legislative power, or :by indirectly creating .conditions or qualities .under Commonwealth legislation which will achieve the same objectives,

What a perfect description of the matter which is before us .now - the Commonwealth Parliament is .enabled; by the exercise of its -own legislative power., to .rid it? elf of any .State legislative " interference"' or "impediment".

That is the clearest possible expression of the argument with which I ventured to open this phase of my .submission. I need not add to it. That is my first reason : that this Is not a Commonwealth taxation law.

My second reason is - and honorable members will appreciate it from the sections of the Constitution which I have read - that this scheme as an endeavour to make the taxation .power exclusive, .although the Constitution has made it concurrent. I emphasize that it is not for us to alter the Constitution, whatever we may think of it. If it states that this power is concurrent and that that power is exclusive, it is not for ns to say, " Well, we think you did it wrongly; we are going to convert a concurrent power into an exclusive one


Mr James - We are not doing this permanently.


Mr MENZIES - -'This problem cannot be affected by the duration of the law. It can be affected only by the nature of the law. If this Parliament can validly prevent a State from imposing income tax, it can validly prevent a State from imposing any tax, and therefore it can make the whole taxation power an exclusive power. Whether this Parliament determines to do this for two years or two thousand years, that does not affect the problem at all.

My third reason is that this scheme, by depriving the States of an important concurrent fiscal power which the Constitution has reserved for them, violates the federal nature of the Commonwealth Constitution. We cannot overcome any of our troubles by wishful thinking. Time and again I have heard constitutional matters discussed in an atmosphere of irritation, as though to say, " Well, we are the National Parliament and we ought to have the power ". Frequently I, too, have thought that we ought to ha;ve certain powers, but that does not answer any questions.. We must always come back to the question:. "Do we possess that power V - not "should we" but " do we ".. If the Commonwealth Parliament cam deprive the State Parliaments of their power to raise revenue by direct tuxes,, and: the Constitution deprives- them of" the power- to raise it by indirect taxes, then the States- are left without financial resources. A government, with no financial resources is- a non-existent government.


Mr Spender - At what point does the Commonwealth's taxing power cease If the Commonwealth taxes incomes to the extent of 60 or 70" per cent., it excludes the States to that extent.


Mr MENZIES - To whatever extent one parliament taxes the people, the field that is available for the other parliament i3 diminished'. That is a matter of arithmetic. &it these powers in relation to taxation are concurrent. The Commonwealth has power to tax my honorable friend, and" the State has power to tax him also.. If there should come a time when the Commonwealth so taxed! him, and every body else, that the- State could not impose a tax at all, it could, very well be said, that the imposition of. such a grotesque, tax by the Commonwealth, was,, in reality, a law to prohibit the State from imposing a tax. But the last thing in the world that we should, endeavour to do in these matters is to set up theoretical questions and' endeavour to answer them. The Commonwealth has not said to the States, that it will take all the. money that every body has,, but it has said that the States shall not. impose. taxes on in? come. It is the validity of. that law which now comes into question. I have said that this violates, the federal principle of the Constitution.. I know that,, in some quarters,, it is considered old-fashioned to talk, about, the federal principle of the Constitution; but. I am. discussing the Constitution that we- have, not the. constitution that exists- in the clouds.. The Constitution that we have gives full recognition- to the continued existence of States, and it is as such a Constitution that we must consider it.. Mr. Justice Dixon, in the case in which Mr. Justice Evatt made certain observations which I have already mentioned, approved of a passage f from a judgment by Mr. Justice Isaacs referring- to - the natural' and fundamental principle that, where, by the one constitution separate and exclusive governmental powers have been allotted to two distinct organisms, neither is intended in the absence of distinct provision to the. contrary to: destroy or weaken the capacity or functions expressly conferred on. the. other.

That is a recognition of the federal principle and the continued existence of States. \ExtemssioTL of time. granted..Mr-. Justice Evatt, m. the- same case, made the- following- statement on: this point: -

Something of what I mean1 is indicated? by Gavan Duffy J>.. iE his dissenting, judgment in the: engineers' case, where he declares that " the existence of the State as a polity is: as essential to the- Constitution as the existence of the. Commonwealth ".

Those statements by Mr. Justice Evatt and Mr. Justice Dixon are not passages from- the judgments of lawyers who take a conservative, or narrow, view of constitutional problems. On the contrary, they are passages from the judgments of men who have, clearly and notoriously taken a liberal view of constitutional problems, and who have subscribed, to the widest interpretation of." Commonwealth powers. Nevertheless, each of them unhesitatingly said that we must never lose sight of the fact that the Constitution is a federal constitution- and that the continued existence of the States is. just as much an ingredient of. it as is the continued existence of the Commonwealth.. For the three reasons that. I have stated I am- unable at present to believe that this law can be upheld under the taxation powers, though, no. doubt,, I shall be required so to believe if the High Court decides against my view. I. have- a- shrewd suspicion that those who drafted these bills hold a similar view, because I have not failed to notice that they axe expressed, to endure for the duration, of the war and for twelve, months- thereafter,, and that certain expressions have been used every now and then, relating this matter to the- defence and security of Australia. In other words, I do- not really believe, that the Government is resting .this matter on the taxation power- I believe that it is- resting it on the war power. I say to the honorable member for Warringah (Mr. Spender), who interjects, that I also hare a shrewd idea that he probably agrees with my argument up to now, though he will disagree with the rest of it.

The question of whether what the Government is now proposing can be done under the defence power of the Commonwealth is, to my mind, immeasurably more difficult to answer than the firstquestion I asked. All I can say about it is that I am left in grave doubt as to whether it can be done. We talk a great deal in Australia about "the war powers " of the Commonwealth and most of us have a light-hearted idea that, whatever may be the position in peace-time, in war-time we may do anything. I notice that the Minister for the Army (Mr. Forde) is smiling. He, like the rest of us, has no doubt been positively corrupted by the National Security Act, and he believes that whenever any problem arises in war-time all that needs to be done is to issue a few new regulations under the National Security Act.


Mr James - The right honorable gentleman was Prime Minister when the National Security Act was passed.


Mr MENZIES - I know it; and I know all about the National Security Act. Aa a Parliament and a community we have light-hearted ideas about what can be done under " the war powers ". But what "the war powers" mean passes the wit of man to define. At any rate, it passes my wit to explain or to understand the defence power of the Commonwealth. Honorable members will recollect that this power resides in the simple words : " The naval and military defence of the Commonwealth and of the several States ". During the last war, a series of cases which came before the High Court for consideration required an interpretation of these words. One case arose out of the prosecution of a bake in what is now my electorate for selling bread at too high a price. In the case, Farey v. Burvett, reported in C.L.R. 21 the High Court was asked to decide whether a regulation fixing the price of bread came within the defence power of the Commonwealth. An unhappy lawyer argued before the court that: " The naval and military defence of the Com monwealth " means naval and military defence just as the expression " white and brown horses " might be thought to mean " white horses and brown horses ". But the High Court said, "No, it means the defence of Australia by whatever means, including naval and military defence ". The then Chief Justice, Sir Samuel Griffith, with incisiveness but by a process of reasoning which I have never been able to understand, said that "naval and military" were words not of limitation but of extension! Consequently, we were cast upon a wide and almost uncharted sea. By and by we reached the stage at which it was said and believed that so long as certain steps might be thought by the Executive to have some relation to the effective prosecution .of the war, they could be held to be within the defence power of the Commonwealth. The words of the Constitution were given an interpretation in war-time which they would never have been given in peace-time. Th, result is that he would be a wise man who, to-day, would set any definition to the words. But I should like to set up this limitation at least, that, however wide the defence power of the Commonwealth may be under the interpretation that has been given to it, it is still one of the powers contained in section 51 of the Constitution, and because it is one of those powers, it is controlled by the opening words of the section, which include " subject to this Constitution ". What do those words mean? I should be surprised if any court could come to the conclusion that the words did not mean, at any rate. " subject to all the other sections of this Constitution ". Consequently sections 106 and 107 of the Constitution would be included, and those are the sections which recognize and require the continued existence of the States-. If language means anything at all - and I am becoming somewhat sceptical on even that point - the words mean that there is a limitation upon the defence powers of the Commonwealth. The limitation is to be found in this, that not even by the use of the defence power of the Commonwealth can we alter the Constitution by destroying the States as polities, taking the word in the sense in which it was used by Mr. Justice Evatt.


Mr Lazzarini - We are not destroying the States.


Mr Rosevear - We are just putting a bomb under them.


Mr MENZIES - I accept the second interjection. That my view on this point is not without support in judicial quarters is shown by a decision given by the High Court in the course of this war in connexion with the Apple and Pear Board. I heard an honorable member say: "Why drag that in?" I shall not drag it in any farther. I can see that the Treasurer is unhappy over the matter and I am profoundly sympathetic with him, but I must point out that in the case Andrews v. Howell,Mr. Justice Starke said -

Almost every citizen is injuriously affected by the war, and the argument we have heard leads apparently to the conclusion that in time of war the Commonwealth has complete power to legislate in respect of the social and economic condition of Australia. But I cannot agree. After all, the Government of Australia is a dual system based upon a separation of powers . . .


Mr Spender - Mr. Justice Starke happened to be the one dissenting judge.


Mr MENZIES - But he was not alone on that last point, for he was supported by Mr. Justice Owen Dixon and Mr. Justice Evatt, as I have pointed out.

It may be said that the marshalling of the financial resources of the country falls within the defence power of the Commonwealth. In a general sense I suppose that it does, but can such a marshalling of the financial resources be effected upon the basis that Australia is a unitary State ? That is the real problem. May we, in dealing with this subject, forget that Australia is a federation when, in dealing with all other powers, except the exclusive powers, we are forced to remember it? I do not believe that we can forget it. I do not speak with positiveness, and I do not desire to be dogmatic on the point. No one knows what decision the High Court may reach on the question of the defence powers of the Commonwealth. But, for the reasons that I have mentioned, I am left in a state of very grave doubt as to the validity of this scheme. When a scheme of this magnitude and far-reaching influence is placed before the Parliament, and the Parliament has a choice between it and the clear scheme propounded by the

Leader of the Opposition (Mr. Fadden) when he was Prime Minister and Treasurer, I believe that the Parliament should say, "We shall stand on firm ground. We shall not stand on unfirm ground. We shall adopt a valid scheme, and not take the risks of invalidity, dislocation and confusion which are involved in the scheme presented to Parliament by this Government."







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