Traditionally, an s 55 inquiry starts by ascertaining what the main or substantial subject of a tax happens to be, and then proceeds to examine whether some foreign second subject happens to be introduced into the tax mix (Proposition 12). However, turning back to the political milieu in 1999 (Proposition 32), it becomes apparent the GST Act fails, indeed defies, this conventional s 55 inquiry.
This is because unlike an income tax, which is a direct tax on income, or a fringe benefits tax, which is a direct tax on fringe benefits, the GST signified “not a new tax” but rather “a new tax system”259 involving an agglomeration of indirect taxes imposed across a range of heterogeneous and disparate subject matters. Specifically, the GST imposes an indirect tax on goods (it is, after all, a duty of excise); an indirect tax on services (or a services tax, as members of Parliament across the political spectrum clearly recognised, and the “S” part of the GST Act acknowledges it to be so);260an indirect tax on State imposts (or a tax on a tax, as pointed out by a number of opposition members of Parliament); an indirect tax on real property transactions (which, as Senator Margetts pointed out, is a subject of taxation traditionally taxed at the State level); an indirect tax on financial supplies (which, funnily enough, appears to partly replicate the very tax base the States were forced to lose because they were required to repeal their financial institutions duty, debit tax and others duties on mortgages, bonds and debentures); and an indirect tax on the creation, grant, assignment, transfer or surrender of any right and an indirect tax on any entry into, or release from, any contractual obligation (both of which has nothing to do with final private consumption). Thus, once we go beyond the title the executive government affixed to the GST and instead examine the actual substance and effect of the GST Act on the various circumstances or indicia of life (Propositions 7-9), it becomes clear that the effect of the GST is to impose taxes on no less than five other subjects of taxation, above and beyond either goods or services.
However, the conglomerate approach toward “supplies” – pushed by the executive government back in 1999 – clearly disabled the Senate from dealing individually with each of these distinct
“subjects” of taxation found within the GST Act. Therefore, the passage of the GST represented a classic textbook example of the executive government achieving in substance what it could not achieve in mere form, namely, “the tacking together of proposals relating to taxation of different kinds
258If a “tax on supplies” is a single subject then quite frankly why cannot a “tax on stuff” be a tax on single subject of taxation?
The executive can “tack” together every s 55 case in existence into a single bill simply by introducing a “tax on stuff” and the taxing of “any form of stuff whatsoever”. The legislation would then define what stuff would be taxed; for example, stuff might include (1) the monetary worth of any wages, salary, profits or any other kind of income; (2) the value of any registered instrument for land or all other forms of property, (3) the price of any financial transaction; (4) or the value of any land at the point of sale. Here, one is driven back to asking “what stuff exactly?” just like asking “a supply of what, exactly?” when examining the GST. It appears that such question-begging exercises might very well be constitutional in countries with unicameral legislatures or virtually non-existent Upper Houses, but they surely cannot be constitutional in a country whose organic law is specifically designed to protect the States from financial aggression on behalf of the Commonwealth.
259Compare Treasury, Tax Reform: Not a New Tax, a New Tax System (1998).
260It seems to me “services” (defined in ordinary parlance as any form of helpful activity) is clearly broad enough to include the provision of advice or information. The information and technology (IT) sector is, by definition, services based and the services provided by a barrister usually encompass the very act of providing any relevant legal advice or information. That is to say, the helpful activity provided in the IT and legal sector is the actual provision of advice or information itself.
in one measure – more than one such proposal, and, perhaps, a number of them”.261In substance, the GST has tacked together a number of different “kinds” of indirect taxes (including duties of excise, services tax, a tax on a tax, real property transaction taxes, etc) into an omnibus “supertax” imposed on many disparate subjects of taxation.262Accordingly, the possibility that the Independents, Greens, ALP, and some Democrats could have formed a bloc to vote down or at least water down what was in substance a newly proposed “services tax” in order to prevent it from adversely affecting the Queensland, Tasmanian and Western Australian tourism sectors, or the controversial “tax on a tax”
insofar as it taxed fire levies and other local charges, was effectively neutralised by the executive government of the day. Indeed, these two examples alone highlight just how much the Senate would have benefited from a discrete “unpackaging” of these indirect “taxes” according to “subject” matter and just how differently the debate might have been framed had the request by the 29 Senators to split the GST Act into different bills been acceded to.
But it was not to be. The “federalism fault lines” which ran through the various parts of the GST Act could not be addressed by voting down the taxes which might be regarded as an outrage to the interests of the States represented in the Senate (Proposition 2). Instead, these taxes were tacked together with an anodyne indirect tax on real property transactions, intangible property and contractual obligations, meaning the States represented by the Democrats, who themselves raised a number s 55 concerns, were forced either (1) to reject the whole GST Act and thereby be accused of crippling some supposed “mandate” of the executive government; or (2) to shut up about their s 55 concerns, and accept the entire agglomeration with some exemption sweeteners for some subjects of taxation. The Democrats, of course, chose the latter (admittedly politically less confrontational) course of action.
Therefore, given the GST is in violent conflict with the manifest tenor of s 55 of the Constitution (Proposition 22), it would appear that the High Court has a clear, some might say regrettable, duty to perform – namely, to invalidate the entire omnibus GST Act (Proposition 6). Yet this should not be something that should be feared by the High Court, which after all represents “the standing security for the maintenance of the rights of the Senate”.263Indeed, given recent talk of raising the GST rate, or expanding the GST tax base, thereby raising the spectre of even further acts of financial aggression of the part of the Commonwealth, the constitutional argument for splitting up the GST Act appears just as strong, if not stronger, today than it was back in 1999. In particular, requiring the GST be split up into several bills might (1) allow the representatives of smaller States to form political alliances and coalitions with those of larger States to vote down each separate bill proposing a regressive increase in a services tax or a tax on a tax; or (2) it might prompt the Senate to vote down any bill unless the government sets a specified tax rate for different subjects of taxation, with higher rates on some subjects (like real property) but lower rates on others (like services);264or (3) it might allow the
261Buchanan v Commonwealth(1913) 16 CLR 315 at 323 (Barton J).
262Commonwealth, Parliamentary Debates, Senate, 16 July 2014, p 5179 (James McGarth): “To cover the states for the loss of income from payroll tax, the GST should be broadened to cover everything and the GST should be increased to 15 per cent”
(emphasis added). It is unclear whether “everything” here means “supply” will be extended to include “the supply of wages” as well. If so, just as GST on the “supply of goods” (one distinct subject of taxation) has subsumed various duties of excise, and GST on the “supply of services” (another distinct subject of taxation) has subsumed the New South Wales bed tax, and GST on
“financial supplies” (another distinct subject of taxation) has subsumed the State financial institutions duty and debit taxes, the GST on the “supply of wages” (yet another subject of taxation) will probably subsume State payroll taxes as well. This again reveals the fact that the GST essentially involves “a grouping of taxes across a wide area”, that is, the “tacking” together tax proposals of different kinds, perhaps an unlimited number, into one measure: cf Commonwealth, Parliamentary Debates, Senate, 23 April 1999, pp 4264 (Andrew Murray); 4266, 4268 (Peter Cook).
263FCT v Munro(1926) 38 CLR 153 at 184-186 (Isaacs J).
264This means that raising, or altering, the GST rate on any one of these individual “subjects” of taxation will require separate consideration and approval from the Senate on each “subject” being taxed. For example, the Senate might consent to allowing more subjects of taxation, like real property, which is less likely to hurt the poor, to be taxed at a higher rate approaching 20%.
By contrast, other subjects of taxation that disproportionately burden smaller States or the poor, like the services tax, might be set at 5%; or a tax on State imposts might be set at 7%. Thus, the Senate can vote down the indirect taxes (or the tax rates) it dislikes, and raise the indirect taxes on subjects it does like. The very fact varying tax rates can be set for these different subject matters draws an irresistible inference that these subjects raise necessarily separate and distinct federalism concerns requiring separate consideration by the two Houses of Parliament.
Senate to assent to a tax increase on some subjects of taxation like the indirect tax on real property transactions or financial transactions, whilst allowing it to refuse (that is, vote down) any regressive increase in the tax on services or the tax on a tax – at least until its specific exemptions for tourism, or various State imposts, are explicitly acceded to by the executive government of the day. Thus, if the GST Act were to be split up into separate imposition Acts, any cross-bencher from Tasmania, or from any other State or Territory, would not be bullied into the compulsive acquiescence to one tax by the moral necessity of passing another distinct tax. Rather, they will be free to say to the executive government:
“I will vote for a 15% real property transactions tax and a financial supplies tax; I have no problem with indirect taxes on these subjects. But, at present, I will never support any proposed increase to the services tax, given there currently are no exemptions for the tourism sector, a major employer in my State of Tasmania. Worse still, the GST tax base is now being expanded to include charitable and disability services, discriminating against poorer constituents in my State which has lower per capita income compared to other States. Therefore, I will vigorously oppose any increase to the indirect tax on services”.
Similarly, any Senator from Victoria is now free to say:
“Constituents in my State must battle the natural environment. But they should not have to battle a federal government that inflicts on them the indignity of a tax on the fire services levy. Accordingly, I vigorously oppose any increase to the tax on a tax, given currently there is no express statutory exemption on fire levies, and other State imposts I have identified”.
But at present the Senate does not have this bargaining power or indulgence in the event the GST tax base were to be expanded, or the hard-won compromises of 1999 were wound back and an even larger kitchen sink were to be again thrown at the Senate by the House of Representatives. Yet again the s 53 gun would be used to put the Senate over the barrel, thereby forcing the Senate to either to accept or reject the entire agglomeration put before it (Propositions 1-2).
Of course, the Commonwealth might very well argue that the fiscal chaos which might result from an adverse High Court judgment should trump these glaring federalism concerns with the GST.
But this ignores the fact the entire scheme can be easily redrafted by the Commonwealth in order to comply with the s 55 mandate,265or passed by the States themselves, at least insofar as the GST is not a customs duty or duty of excise, and therefore, is not in conflict with s 90 of the Constitution. The Commonwealth and States would be put on notice from the outset of any litigation, meaning a wide range of separate GST Imposition Acts could be passed well ahead of a contested High Court hearing so as to reduce the effectual scope of a finding of invalidity on the GST (General) Imposition Act as a residual Imposition Act.266Such legislation could be made with retrospective effect, allowing a credit for any GST paid on the taxed items under any superseded or concurrent GST Imposition Act.
Therefore, there is nothing to stop the Commonwealth shoring up its position in advance of an adverse decision. Furthermore, the High Court could announce in advance when it will release its decision in order to allow Parliament to be in session in the event new legislation is required to be passed. In turn, the Commonwealth could immediately prevent a wave of claims for refunds by preparing a 100%
refunds tax similar to that which it imposed on refunds claimed from State Treasuries after the High
265If consequences are a legitimate judicial factor for consideration, then one may as well argue that invalidating the GST in its entirety might actually have a number of positive consequences. It might, for example, prompt the Commonwealth to replace the GST with a more efficient consumption tax by introducing a cashflow tax. See the Henry Review, AFTS: Report to the Treasurer(Vol 1) (2009) pp 279-284. A direct tax on cashflows is, of course, a tax on one subject of taxation only, namely, cashflows, thus requiring a single tax bill in order to be implemented (no separate Excise or Customs Imposition Act would be required either).
266Because the Excise and Customs Acts already probably “cover the field” in respect to goods, the GST Act would only need short imposition Acts which “funnel out” the remaining indirect taxes inside the GST into following subjects of taxation: Goods and Services (Services Tax) Act; Goods and Services (State Taxes Tax) Act; Goods and Services (Real Property Tax) Act; Goods and Services (Rights Assignments Tax) Act; Goods and Services (Financial Transactions Tax) Act; Goods and Services (Contractual Relations Tax) Act; Goods and Services (Rights Transactions Tax) Act; and Goods and Services Tax (Residual and Exemptions) Act. For reasons already given in footnote 260 above, “services” could, under a single imposition Act, be defined to include the provision of any advice and information.
Court invalidated the State tobacco and petrol franchise taxes. For the High Court, invalidating an important item of fiscal legislation is a case of “been there, done that”.
In any event, s 55 would forever be rendered a dead letter if such consequences were a primary, or even overriding, factor in considering whether or not to declare a law unconstitutional under s 55.
This is because extreme fiscal and political consequences are precisely what one would expect from invalidating an omnibus tax bill like the GST. Indeed, the more extreme the “tacking”, and therefore the broader the range of subjects which underpin the underlying tax base of any unconstitutional tax system, the more extreme one would actually expect the fiscal or political consequences of invalidating any general or composite tax statute to be, especially if the statute goes unchallenged for some time. Thus, if consequences are a legitimate judicial consideration, the High Court will simply be forced to shrink from discharging its judicial duty every time there might be adverse fiscal consequences arising from any extreme instance of “tacking” together many disparate subjects of taxation.
Fortunately, the traditional rule has been “let justice be done, though the heavens fall in” (fiat justitia, ruat caelum)267and the consequences of invalidity should not properly be a matter for judicial consideration if a court is convinced that any piece of legislation, no matter how allegedly important or sacred, has been found to circumvent any express mandate imposed by the Constitution (Propositions 26, 35). This is especially the case here, given the framers of the Constitution considered the matter and felt that breaches of s 55 should have consequences either in order to ensure adherence to the rule of law, to protect the liberty of the individual, or to safeguard the rights of smaller States (Propositions 3-4, 26). Political inconvenience is simply not a sufficient reason to continue to allow the Constitution to be held hostage to the demands of tax collectors.
267R v Wilkes(1770) 4 Burr 2527 at 2562 (Lord Mansfield). His Lordship was giving reasons for finding invalid a declaration of outlawry of John Wilkes, the publisher and politician, despite the significant animus both his Lordship and Mr Wilkes had for each other.