Victoria v Commonwealth (1957)
Encyclopedia
Victoria v Commonwealth 99 CLR
575 ("the Second Uniform Tax case") is a High Court of Australia
case that affirmed the Commonwealth government's ability to impose a scheme of uniform income tax, ultimately arising in a vertical fiscal imbalance
in the spending requirements and taxing abilities of the various levels of government.
. Some of the laws were justified under the defence power; however, the scheme was not dismantled despite the end of wartime conflict.
The Income Tax Act 1942 could not be challenged because it was within the taxation power. The Income Tax (Wartime Arrangements) Act 1942 was not an issue because it had already been repealed.
In the first Unifrom Tax case the High Court decided that the Comm. Parl. had the power to tax incomes. The Comm. had passed legislation that allowed them to nationally tax incomes. Prior to this each state had their own income tax laws. The new Comm. taxation was so high that people could not effectively pay both taxes. The states challenged this in the High Court and argued that; Taxation was a concurrent power; the Comm. tax was so high that people would not be able to pay both taxes and therefore the states would no longer be able to tax incomes. The High Court disagreed and held that section 109 ensured that Comm. law overrode inconsistent state laws on concurrent powers, the Comm. could impose income Taxation.
The States Grants Act 1942 was held to be valid, despite a section 96 issue. The Commonwealth can use the section 96 grants power to induce a state to exercise its own powers as well as abstain from using its powers. Hence the Commonwealth can do such things to encourage or discourage a state from exercising its powers. However, while it can induce such things, it cannot coerce a state into accepting a grant. Nonetheless, indirect compulsion is constitutional. While the Income Tax Act 1942 raised Commonwealth income tax rates to a level that made it politically impossible for the states to impose their own, this was not at the level of coercion that was prohibited. Latham CJ noted that the states still had the choice not to accept Commonwealth grants. McTiernan J also considered the Act valid under the defence power.
The previous decision on Section 221 of the Income Assessment Act 1942 was overturned, and the law was held invalid. The majority (Dixon CJ, McTiernan, Kitto and Taylor JJ) thought that it was not pursuant to the taxation power. Dixon CJ held that it could only possibly be a valid exercise of the implied incidental taxation power. However, the scope of section 51(ii) is federal taxation for federal purposes. Hence any taxation law made pursuant to the incidental power must also be federal taxation for federal purposes. Dixon CJ saw the purpose of the legislation as the exclusion of the state's ability to impose income tax, which is not a federal purpose. Although this section was challenged and overturned, it was not important because the states could no longer impose income taxes.
The Commonwealth cannot restrain states in terms of their governmental functions. Dixon J inferred from this principles that there should be some restraints on interpretation of section 96 of the constitution. Section 96 grants must be confined to grants of money, and is not a power to make laws with respect to general subject matter. It must be concerned with state finance and must not be coercive. The power to attach conditions to section 96 grants is broad but they must be within the state's constitutional competence to fulfil.
Commonwealth Law Reports
The Commonwealth Law Reports are the authorised reports of decisions of the High Court of Australia. The CLR are published by the Lawbook Company, a division of Thomson Reuters...
575 ("the Second Uniform Tax case") is a High Court of Australia
High Court of Australia
The High Court of Australia is the supreme court in the Australian court hierarchy and the final court of appeal in Australia. It has both original and appellate jurisdiction, has the power of judicial review over laws passed by the Parliament of Australia and the parliaments of the States, and...
case that affirmed the Commonwealth government's ability to impose a scheme of uniform income tax, ultimately arising in a vertical fiscal imbalance
Fiscal imbalance
- Meaning and Types :Fiscal imbalance is the term used to denote a mismatch in the revenue powers and expenditure responsibilities of a government. In the literature on fiscal federalism, two types of fiscal imbalances are measured: Vertical Fiscal Imbalance and Horizontal Fiscal Imbalance...
in the spending requirements and taxing abilities of the various levels of government.
Overview
The Uniform Tax system implemented in 1942 relied upon 4 pieces of legislation, all held as constitutionally valid in the First Uniform Tax caseSouth Australia v Commonwealth
South Australia v Commonwealth 65 CLR 373 is a High Court of Australia case that established the Commonwealth government's ability to impose a scheme of uniform income tax, ultimately arising in a vertical fiscal imbalance in the spending requirements and taxing abilities of the various levels of...
. Some of the laws were justified under the defence power; however, the scheme was not dismantled despite the end of wartime conflict.
The Income Tax Act 1942 could not be challenged because it was within the taxation power. The Income Tax (Wartime Arrangements) Act 1942 was not an issue because it had already been repealed.
In the first Unifrom Tax case the High Court decided that the Comm. Parl. had the power to tax incomes. The Comm. had passed legislation that allowed them to nationally tax incomes. Prior to this each state had their own income tax laws. The new Comm. taxation was so high that people could not effectively pay both taxes. The states challenged this in the High Court and argued that; Taxation was a concurrent power; the Comm. tax was so high that people would not be able to pay both taxes and therefore the states would no longer be able to tax incomes. The High Court disagreed and held that section 109 ensured that Comm. law overrode inconsistent state laws on concurrent powers, the Comm. could impose income Taxation.
Decision
The High Court affirmed the position of the First Uniform Tax case, with some exceptions.The States Grants Act 1942 was held to be valid, despite a section 96 issue. The Commonwealth can use the section 96 grants power to induce a state to exercise its own powers as well as abstain from using its powers. Hence the Commonwealth can do such things to encourage or discourage a state from exercising its powers. However, while it can induce such things, it cannot coerce a state into accepting a grant. Nonetheless, indirect compulsion is constitutional. While the Income Tax Act 1942 raised Commonwealth income tax rates to a level that made it politically impossible for the states to impose their own, this was not at the level of coercion that was prohibited. Latham CJ noted that the states still had the choice not to accept Commonwealth grants. McTiernan J also considered the Act valid under the defence power.
The previous decision on Section 221 of the Income Assessment Act 1942 was overturned, and the law was held invalid. The majority (Dixon CJ, McTiernan, Kitto and Taylor JJ) thought that it was not pursuant to the taxation power. Dixon CJ held that it could only possibly be a valid exercise of the implied incidental taxation power. However, the scope of section 51(ii) is federal taxation for federal purposes. Hence any taxation law made pursuant to the incidental power must also be federal taxation for federal purposes. Dixon CJ saw the purpose of the legislation as the exclusion of the state's ability to impose income tax, which is not a federal purpose. Although this section was challenged and overturned, it was not important because the states could no longer impose income taxes.
The Commonwealth cannot restrain states in terms of their governmental functions. Dixon J inferred from this principles that there should be some restraints on interpretation of section 96 of the constitution. Section 96 grants must be confined to grants of money, and is not a power to make laws with respect to general subject matter. It must be concerned with state finance and must not be coercive. The power to attach conditions to section 96 grants is broad but they must be within the state's constitutional competence to fulfil.
See also
- Constitutional basis of taxation in AustraliaConstitutional basis of taxation in AustraliaThe constitutional basis of taxation in Australia is based on a group of powers in the Australian Constitution: sections 51, section 90, section 53, section 55, and section 96...
- Australian constitutional lawAustralian constitutional lawAustralian constitutional law is the area of the law of Australia relating to the interpretation and application of the Constitution of Australia. Several major doctrines of Australian constitutional law have developed....