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Thursday, 28 May 1942

Mr BLACKBURN - That is so.

Mr SPENDER - That is a plain statement of fact. What is the spirit of the Constitution? Lest honorable members seek their answer in the debates that took place at the federal conventions, I hasten to warn them that no man can explain to them what is the spirit of the Constitution, in determining the powers or the rights of the Commonwealth or the States. The only way in which we can determine whether legislation is constitutional is by examining, in accordance with the terms of the Constitution, whether it is permissible. If it be permissible, that power may be exercised in accordance with any policy which recommends itself to the Government from time to time.

This measure has been attacked by those who come from States in which income taxation is lower than in New South Wales and Queensland. It is clear that the substance of their objection rests on that ground. Can it be said that they are approaching this subject on the ground of national interest? Are they not really adopting a parochial or State attitude? I make no apology for supporting this measure. If this were a step towards the centralization of power in the Commonwealth Parliament, I should support it on that ground alone. In 193S I expressed in this House my views on the subject of constitutional reform in a debate which was initiated by the right honorable member for Yarra (Mr. .Scullin). I have no desire to recapitulate the views which I expressed then, but I have consistently stood by those views, and have found my reasons confirmed by what has happened in this war. If it were only on the ground of unification, which is so condemned by many members of my own party, this legislation would be a majestic step forward to nationhood. But if it is to be defended on the narrower, but equally vital ground, at this time, of our great financial needs in time of war, and the overriding necessity for financial stability, it again has my support. Reasons for supporting it can be well established. In the last war the Commonwealth entered for the first time the field of direct taxation.

Mr BLACKBURN - Not for the first time.

Mr SPENDER - I am speaking of the field of income taxation, in which the Commonwealth first became active in 191G. In this war we have to go further into the field of direct taxation. It seems to me that to allege that because the Commonwealth does so, irrespective of State rules and State measures, its act amounts to an infringement of some constitutional right, is merely to beg the question, for if the Commonwealth has the power to do it, there is every justification for doing it. As the constitutional aspect of this matter has been raised, I propose to direct some observations to that subject.

First I would like to make some remarks by way of a preliminary approach to the subject. Federal taxes which are raised on the basis of taxable capacity, although the distribution is made on the basis of population, mean that the more wealthy States contribute to the needs of the less wealthy States. There has been no objection to the system on that ground. I have not heard any of the less wealthy States object on that ground to recovering money from Commonwealth funds, which, for the most part, have been contributed by the major States, in particular New South Wales.

Mr Barnard - Does the honorable member object to that system?

Mr SPENDER - No; on the contary, I support it. But I draw attention to the inconsistency of people who do object to it. I have not heard that it is unjust, discriminatory or unconstitutional. In that matter, no doubt, a broad, national view is taken. During this war the expenditure of government funds in certain States has given to them an advantage in comparison with the benefits conferred on other States. In particular Victoria and South Australia have benefited from such expenditure, notwithstanding that the funds were contributed by taxpayers throughout the Commonwealth. Since the levy was made on the basis of the population, those funds came mostly from the two States of New South Wales and Victoria ; but I have not heard from South. Australia any complaint on that ground. Upon examination, all this talk about discrimination is revealed as indeed i transparent when we know that there has been discrimination for some time. The system of taxation which has been in operation for years allows for the deduction of State taxes paid, and that, surely, is discrimination of a kind; yet no one has raised his voice in opposition to the system. Even those States who do not benefit as much as the others have not objected, because it is only a matter of degree. In each State there is a different State levy, but the amount paid is in every instance deductible in respect of Commonwealth income tax. In certain States some people contribute more to Commonwealth funds than is contributed by the people of other States, yet no voice is raised against the system. When the Fadden scheme, which provided for equal contributions, but, I take the trouble to point out, with varying taxes, was brought before the House, no voice was raised by those who now complain that the other States are being badly treated, and that this scheme will not be of benefit to the country The plain truth is that we need more of a national approach to these problems and less of a State or parochial approach.

With these preliminary remarks I pass on to speak of the constitutionality of this bill. I shall not do so at great length, but I hope to say sufficient to indicate my views clearly. In the first place, this is hardly the proper place to discuss at length the constitutionality of the bill. Sometimes when a government introduces a bill its constitutionality is challenged. That occurred in relation to the National Insurance Bill. There were some who said that that measure was unconstitutional. I had my own views and voiced them very briefly at the time. In that instance, as in respect of this measure, I imagine that the Government concerned satisfied itself, before introducing the legislation, as to its constitutionality. If that has been done, and the Government is convinced that its proposals are constitutional, it is a matter of little consideration for this House : although, if obviously the constitutionality of a measure is doubtful, the matter is properly debatable here. It is somewhat improper to engage in a long legal dissertation on the subject of whether a measure is or is not constitutional. My own view is that there can be little doubt that this measure is constitutional, both upon the ground of the power to tax and upon the basis of the defence power of the Commonwealth. I advance my views with the same degree of hesitation as any lawyer advances a view. The right honorable member for Kooyong (Mr. Menzies) has expressed the opinion that this legislation would not come under the taxation power and he doubts indeed whether it can be said to come under the defence power. I desire to have my view recorded, for what it is worth, that if the constitutionality of this measure were ever assailed, the matter would be settle beyond all dispute in favour of its constitutionality. Let me indicate my reasons. In the first place, there is no doubt whatever that there is a concurrent power to tax in both the Commonwealth and the States. Where the States and the Commonwealth have concurrent power, should the Commonwealth impose a tax which excludes wholly or partly a State from the same field, then the Commonwealth tax prevails. It is obvious upon examination that the rights of the States in respect of taxation are subordinate to those of the Commonwealth. I asked the right honorable member for Kooyong, who spoke of the equal powers of the States and the Commonwealth to tax, at what point it can be said that th, Commonwealth power disappears. With great respect to him, I say that he evaded that point, but it is the gist of the problem. If, in point of fact, the Commonwealth at the present time, having a heavy financial burden to carry - for the forthcoming year it will probably need £400,000,000- should decide as a matter of policy to raise £125,000,000 or £130,000,000 by way of direct taxation. Its action would have exactly the same effect as the measure before the House. Is there any one who would contend that the Commonwealth has not that power? Would any one contend that if because the Commonwealth exercised that power the States were shut out from that field, or a large portion of it, the Commonwealth legislation would be unconstitutional on that ground? Surely no one would argue that way!

Mr BLACKBURN - No one is arguing that way.

Mr SPENDER - I am taking one step at a time. In this case, if it were not for the provision which is made to reimburse the States there could be no doubt that a measure imposing rates of tax, and nothing more, would be constitutional. Supposing that to-day we pass this measure dealing with the imposition of rates and nothing more, and that two months hence we pass another measure to give financial aid to the States, could it be said then that measures were unconstitutional? It seems to me that when we get as far as conceding that the Commonwealth has the right to take from a given field a substantial sum of money which it needs we have gone a long way towards admitting the constitutionality of its action. It is said that in this scheme there is provision for making contributions to the States in order to recompense them for the loss of revenue from income tax, but, in my opinion, that is nothing to the point. If. in point of fact the Commonwealth has the power to levy taxes in the manner indicated it is nothing to the point to show that its action will have a certain effect on the States, and that, therefore, the provision to compensate the States by making a grant to them under section 96 of the Constitution gives the key to its unconstitutionality. It is indeed not without relevance to stress that the proceeds of the tax to be imposed must go into Consolidated Revenue, where they lose their identity. When the matter is examined along these lines, all this talk about the infringement of the rights of the States to tax is of no avail. We know that the power to tax is in the Commonwealth and can be exercised by the Commonwealth. The mere fact that this scheme has as a part of it the reimbursing of the States under section 96 is nothing to the point. It cannot be disputed that if the Parliament could exercise the power to tax without any regard for the States, it could enter practically every field of taxation now enjoyed by the States.

Mr BLACKBURN - So long as the tax was for federal purposes.

Mr SPENDER - In that way it could completely smash the finances of the States. If that be the power of the Commonwealth, how can it be prevented in tl is case? it may be contended that it is not collecting the money for its own purpose, but it seems to me that when the Commonwealth is faced with the problem of defending this country, it cannot be said that there is no power on the part of the Commonwealth to collect this money and then, under section 96, to make provision for reimbursing the States, or supporting them, during the war. I think the honorable member for Bourke will admit that, if an income tax bill containing a schedule of rates of tax precisely similar to the schedule contained in this income tax bill, were placed before this House its validity would not and could, not be challenged, notwithstanding the fact that, it would have the effect of smashing the power of the States to impose a tax on incomes. Then, if two months afterwards, a bill were introduced for the purpose of compensating the States for the loss of revenue sustained by them as the result of the monopolizing of the income tax field by the Commonwealth, that legislation would pass through Parliament equally unchallenged and unchallengeable. Introduced independently and one following the other after a lapse of some time, -both measures would be perfectly good legislation. How then can any honorable member contend that because similar measures are introduced concurrently, the legislation is bad ? These measures have been introduced concurrently because it is necessary that the tax be levied in order that the Commonwealth may receive the money it requires to finance the war and because it will be necessary to reimburse the States the revenue that they will lose by being forced in substance from the income tax field. There is no need for the Commonwealth to wait for two months to know that the States will require to be reimbursed. That is so obvious as to require no elaboration.

Mr Blackburn - More than that is done. The Government takes power to take from the States the whole of their taxing machinery and to provide that they shall not be able to collect one penny of income tax until the Commonwealth has been paid 20s. in the £1.-

Mr SPENDER - That is substantially correct, but that is precisely the power possessed by the Commonwealth to-day. Even now the Commonwealth has the power to make the first levy on incomes.

Mr BLACKBURN - But it is doing this under one scheme.

Mr SPENDER - Yes. It could be done under two schemes and be quite effective.

Mr BLACKBURN - Political considerations would restrain the Government.

Mr SPENDER - I do not see why. The rates of tax could be increased now, and, next week, the Commonwealth Government could introduce a measure providing for grants to the States and appropriating a large amount of money for that purpose without defining how the money would be distributed.

Mr Blackburn - But it would not do so. It would not be politically feasible.

Mr SPENDER - My concern is with the constitutional aspect, and what is constitutionally possible is politically possible. The honorable gentleman's argument, on his own admission, is disappearing. I am advancing reasons why this legislation will be found to be proper. I am not concerned about whether it is against the spirit of the Constitution as interpreted by Mr. A or Mr. B. What concerns me is whether what is being done is a proper thing to do. I am answerable only to thi3 Parliament and through it to the people of Australia, not the people of just one State.

Further criticism of this legislation has been based on the principle that every government should have the responsibility of raising its own revenues. That argument was advanced, not as a constitutional inhibition upon the Commonwealth, but as a principle that should be observed. That principle has not been observed in full for a very long time, for the States are dependent to a large degree on the will of the Commonwealth. Anybody familiar with the financial agreement knows the extent to which the Commonwealth can condition the policies of the States.

Mr Chifley - Moreover, the States' loan programmes are dependent on Commonwealth advances.

Mr SPENDER - Quite so. Talk about the principle gets one nowhere. In Canada payments to Provinces of revenue raised by the Dominion Parliament have been for generations a feature of national finance. In the United States of America, the basis of whose constitution is similar to that of the Commonwealth Constitution, during the civil war, the Federal Government collected a direct tax which it subsequently distributed among the States. Here we have done the same thing in part for 40 years. Neither the argument that the proposals are inconsistent with section 51 of the Constitution, nor the argument that the principle that each State should have the right to raise the money it expends is sound.

I now come to the final ground, the defence powers of the Commonwealth. I was amazed to hear the right honorable member for Kooyong express the view that the power of defence is not exclusive to the Commonwealth. Of course, the right honorable gentleman can say that the reasoning of the majority of the High Court Bench in the Josephs case, which was settled during the last war, does not appeal to him - I suppose that more than one lawyer has had given against him a verdict with which he disagrees - but it is the decision, not his disagreement, which makes the law. If there were any doubt about the exclusive power of the Commonwealth in respect of defence - I do not admit that there ever was - it was removed completely during the last war. The right honorable member for Kooyong referred to the judgment of three justices of the High Court Bench, and he said in substance that they reasoned that, because departments of State, of which the Department of Defence was one, were transferred to the Commonwealth, the defence power was automatically and exclusively transferred to the Commonwealth. That statement hardly does the right honorable gentleman credit. The High Court consisted of five justices and, for the purpose of showing that they considered many sections of the Constitution, it is material that I should refer to the judgments delivered. The judgment of Mr. Justice Isaacs, Mr. Justice Powers and Mr. Justice Rich stated : -

By Section SI (VL.) the Parliament has power to make laws with respect to " The naval awl military defence of the Commonwen Hh and of the several States, and the control of the forces to execute and maintain the laws of the Commonwealth ". Section 52 (11) makes exclusive the Commonwealth power of legislation with respect to " Matters relating to any department of the public service the control of which is by this Constitution transferred to the Executive Government of the Commonwealth ". By Section 01* " Naval and military defence " is named aa one of the departments to be " transferred " : and it has been transferred. So far, then, the legislative power is exclusive. Then, by Section 70, the executive power is also made exclusive, because there are " transferred " from the Government of the Stale to the Government of the Commonwealth "al! powers and functions " relating to the transferred departments.

Sections 106 and 107, to which the right honorable gentleman referred, were dealt with by Mr. Justice Isaacs, who read the judgment. His Honor said : -

Sections 10C and 107, dealing with State Constitutions and Parliaments, declare that, these are to be limited accordingly. Section 114 forbids the State, without Commonwealth consent, raising or maintaining any naval or military force; and section 1H) declares the obligation of the Commonwealth to protect every State against invasion and, on requirement, against domestic violence.

Section 119 is a very important section that was not referred to by the right honorable gentleman. The obligation to defend against invasion is on the Commonwealth. Mr. Justice Higgins delivered a judgment in which he expressed views which showed quite clearly that he was of the same opinion as Mr. JusticeIsaacs, Mr. Justice Powers and Mr. Justice Rich. Mr. Justice Gavan Duffy, although he had not decided the case upon the same grounds as his colleagues, was at pains to make clear that he did. not want to have it appear that he necessarily differed from his brother judges on this point. It is idle and futile for the right honorable member to say in this House that there is still doubt as to whether the power of defence in Australia is exclusively vested in this Parliament and through it in the Executive.

It is clear from the judgments of the High Court that the exclusive defence power of the Commonwealth is an overriding power in war-time. During the last war many attempts were made to challenge regulations made under the National Security Act, and acts which purported to be made in exercise of the defence powers of the Commonwealth. It is significant that in not one case was the challenge successful. I am glad thatthe men who have sat on the High Court Bench have not brought to the consideration of the Constitution the narrow views which this House has been asked to-day and yesterday to accept. They have shown a knowledge of what is needed in a central government to carry out the heavy obligations of war. The last occasion on which an attempt was made to challenge the powers of the Commonwealth in wartime was the case of Andrews v. Howell, decided during the war, to which the right honorable member for Kooyong referred. The High Court Bench in that case, as I read it, clearly construed the defence powers of the Commonwealth as transcending section 92, which applies - as was decided by the Privy Council - to both the States and the Commonwealth. The Commonwealth and the High Court held that the defence powers of the Commonwealth were quite sufficient to cover even the acquisition of apples and pears. It is significant to read very briefly from the judgment of the Acting Chief Justice, Mr. Justice Rich, who was one of the judges in the Josephs case. This is what he said: -

The first point was that the entire plan was foreign to the defence power - section 51 (vi). AfterFarey v. Burnett (1910), 21 CL.R. 433, 22 A.L.R. 201, and the decisions during the last war which followed that case, I should have thought the argument was a hopeless one. I shall do no more than quote from the judgment of Isaacs J. (as he then was), two passages describing the application of the power to the circumstances of the last war in language even more opposite to those of this war - " a war, imperilling our very existence, involving not the internal development of progress, but the array of the whole community in mortal combat with the common enemy, is a fact of such transcendent and dominating character as to take precedence of every other fact of life. It is ultima ratio of the nation. The defence power, then, has gone beyond the stage of preparation, and passing into action, becomes the pivot of the Constitution, because it is the bulwark of the State. Its limits, then, are bounded only by the requirements of self-preservation " - 21 page 453, 22 A.L.E. 209. The other passage is as follows: - "But when we see before us an unexampled struggle, in which we are a people, as an indivisible people, are not spectatorsbut actors, when we, as a judicial tribunal, can see beyond controversy that co-ordinated effort in every department of our life may be needed to ensure success and maintain our freedom, the Court has then reached the limit ofits jurisdiction. If the measure questioned may conceivably in such circumstances, even incidentally, aid the effectuation of the power of defence, the court must hold its hand and leave the rest to the judgment and wisdom and discretion of the Parliament and the Executive it controls - for they alone have the information, the knowledge and the experience, and also, by the Constitution, the authority to judge of the situation and lead the nation to the desired end ".

And Mr. Justice Rich added these words -

I cannot see how in a totalitarian war Court could say that an organization to deal with a not unimportant primary industry is outside the scope of the power.

And Mr. Justice- Dixon expressed the following view: -

It is enough, however, to consider the object stated by the regulations as that upon which they were based. In the circumstances of the present war it would, I think, be strange if such a purpose were hold to fall outside the defence power. Indeed, the course of the war has made it clear enough that it is impossible to treat the internal condition of a combatant country as a thing which can have at best only an indirect bearing upon the prosecution of the war.

How, then, can it be reasonably argued that, under the conditions under which we find ourselves at present, arrayed in mortal combat against the totalitarian powers, each of which has marshalled its economic resources, the marshalling of our own economic resources is riot just as vital as the marshalling of any other of the resources of this country? It seems idle to argue that there is any substantive doubt as to what power the Commonwealth possesses under the Constitution in time of war. The defence power of the Commonwealth transcends all other power; and, if in point of fact, any measure can only be incidentally related to the object of winning the war, then the Court does not sit in judgment as to whether it would come to the same conclusion. 'This Parliament is the repository of the views of the people, and the Commonwealth Government is responsible to this Parliament. It is for this Parliament to say whether this legislation will aid in the prosecution of the war. All of the totalitarian nations at war with us have made finance the basis on which they have erected their national structures. Totalitarian Germany made finance the original foundation of its present power. It is idle to contend that finance can be divorced from tilt: power of defence, that the need for financial stability can be divorced from the requirements which the war imposes upon us as a nation. Therefore, the vital issue seems to me to be: first, whether the Constitution permits us to do what we are now asked to do. I have expressed my view on that aspect. Of course, I acknowledge that the view expressed by any lawyer may prove to be wrong; but that will be established only in the course of time. I do not hesitate to say that in respect of the power of both, taxation and defence, certainly under both conjointly, it will be found that this legislation is within the competency of this Parliament. The fact that this legislation is to operate merely for the period of the war, and twelve months thereafter, seems to make the case in support of it even stronger. I believe that we have reached the stage when we must either permit the States to dictate how we shall fight the war so far as income taxation is concerned, or assert our rights. 1 shall not permit the States, by their systems of taxation, to impede or restrict our primary right, to impose taxes upon whatever standard we think fit. I have had some experience in dealing with the States. It can at least he said that they do not always reveal an understanding of, or sympathy, with the problems which beset the Commonwealth Government in respect of finance. Honorable gentlemen who have occupied the office of Treasurer during this war are aware of that fact. For too long, the Loan Council meetings have been conducted too much on the basis of bluff poker. At those meetings, one State bids' against another, and bluffs its way to the end in order to Bee how much it can get at the expense of some other State, or the Commonwealth. It is about time that the finances of the nation were placed upon a sound foundation. This legislation represents a step in that direction. I congratulate the Government on having introduced this legislation, and the special committee on the work it performed in respect of it. The country is very much indebted to the members of .that committee for their work. Speaking for myself. I say that whether it be for the reason that this legislation is a step towards unification, as I explained in tho speech I delivered in this House in 1938, or whether, on the ground that it is necessary in order to enable the Government to provide the essential needs of the country in time of war, this legislation should receive the support of the House.

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