PAPE Summary - Gives an outline on Pape case PDF

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Gives an outline on Pape case ...

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PAPE SUMMARY FACTS  

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The case arose from the response of the Rudd Labor government to the global financial crisis that emerged in 2008. The Tax Bonus for Working Australians Act (No 2) 2009 (Cth) provided for a “fiscal stimulus package” in the form of a one-off bonus payment to taxpayers whose taxable income in 2007-2008 was less than $100,000. For incomes under $80,000 the amount payable was $900; for incomes between $80,000 and $90,000 it was $600; for incomes between $90,000 and $100,000 it was $250. Mr Bryan Pape, a Senior Lecturer in Law at the University of New England and potential recipient of a $250 payment, challenged the validity of the legislation.

Held 6:1 legislation was valid o Majority: French CJ, Gummow, Crennan and Bell JJ, Hayne and Kiefel JJ o Minority: Heydon J Held 4:3 (French, Gummow, Crennan and Bell) that the source of power to make bonus payments could be found in s 61 CC and s 51 (xxxix) As Hayne, Kiefel and Heydon JJ did not find the legislation valid under s 61 and the incidental power, they had to consider whether other heads of power could support the Act o They considered: the external affairs power (s 51(xxix), taxation power (s 51(ii), trade and commerce (s 51(i)). Hayne and Kiefel JJ held that the payment of the bonus and the Tax Bonus Act 2009 (Cth) (as read down) were constitutionally valid under the taxation power (s51(ii)). Heydon JJ dissented

1. Appropriation   

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The Tax Bonus Act did not itself contain an appropriation clause However s 16 f the Taxation Administration Act 1953 (Cth) makes a standing appropriation to cover any amount which the Commissioner of Taxation is ‘required or permitted to pay…by or under a taxation law’ The term ‘taxation law’ is defined by the Income Assessment Act 1997 as ‘an Act of which the Commissioner has general administration”; and the Tax Bonus Act was brought within this definition by s 3, which vested ‘the general administration of this Act’ in the Commissioner

CH 6:1 (Heydon J assumed question did not arise), that this device was sufficient to provide necessary appropriation to cover the bonus payment. However, whole court held this did not mean the legislation was valid. Held that appropriation made under s 81 is not sufficient to confer validity on the proposed expenditure, as s 81 only deals with appropriation Therefore, it is no longer important to determine the precise scope of the phrase ‘purposes of the Cth’ – even if the broadest of those purposes is taken, it does not follow that the expenditure for those purposes will be valid. Therefore, appropriation under s 81 is not sufficient to confer validity on the proposed expenditure o However appropriation is a necessary pre-condition for expenditure under s 81 o It is a limit upon executive power to spend (per French CJ) Commonwealth Executive can only spend on matters (activities, persons and subject matters) within Commonwealth legislative and executive power (express or implied) o i.e. must come within the scope of the Cth legislative and executive powers. Expenditure of money appropriated by Cth Parliament must fall within: o The Constitution (e.g. ss 83, 96) o A grant of legislative power (e.g. ss 51, 52, 76, 122) o Cth executive power (e.g. s 61) Therefore to determine whether Cth expenditure is valid, it is necessary to ascertain: o The scope of the Cth executive power (e.g. s 61) or legislative power (s 51); and o Whether the expenditure falls within the scope of such a power.

2. Taxation power  

CH that the administration of the Act was vested in the Commissioner of Taxation, thus bringing it within the definition of ‘taxation law’, however the whole CH that the Act could not be supported in its full operation as a law with respect to taxation under s 51(ii). Hayne and Kiefel held that its operation could be read down so that a significant proportion of the intended payments could be supported by s 51(ii).

Per Hayne and Kiefel JJ  Did not agree that the payments were valid as an exercise of Cth executive power under s 61, with the consequence that the legislation was valid under s 51(xxxix).  Therefore, considered whether the Act was one with respect to taxation, decided it was.  They considered the scope of s 51(ii): o Then considered whether the Cth law requiring the payment of a sum [of money] to the Government is a law with respect to taxation. o The character of the Act depends on the Kitto J test in Fairfax: ‘subject matter is to be determined solely by the direct legal operation of the Act, that is, the nature of the rights, duties, powers and privileges which the Act changes, regulates or abolishes’. 

They considered that the law was with respect to taxation o It is a law with respect to taxation because it takes as the critical criterion for its operation the identification of a person as one who has paid tax for the most recently completed financial year. o And because only those who have paid tax are eligible, the law is said to be with respect to taxation.

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But considered it did not, in its textual provisions, have a ‘necessary connection’ between the amount that was paid as a tax bonus ‘because some taxpayers could/might get a bonus greater than their tax liability’ o Per Kitto J: the character of the Act depends on the ‘nature of the rights, duties, powers and privileges which it changes, regulates or abolishes’ o Character of Act was not valid as there was no direct connection between the amount of the bonus and the amount that was paid in tax. o (One of the exceptions to the Cth Government imposing a tax is that there is no connection between the subject (the event/criteria giving rise to the tax) and the object (person liable to pay tax: MacCormick and Truhold)

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They asked whether the Act could be ‘read down’ under s 15A of the Acts Interpretation Act 1901 (Cth) o They said it could, so that the operation of the Act is one with respect to taxation o Gummow, Crennan and Bell JJ held that this solution was not acceptable  That the ‘[question] is whether the Act was designed to operate fully and completely according to its terms or not at all’ o French CJ did not consider the issue o Heydon J:  Held that it was fundamentally misconceived, in a way that no ‘reading down’ could cure  Cannot be a law with respect to taxation – the Act, ‘although devised to achieve an object other than the correction of a taxation error, has no other connection with rights and liabilities in relation to taxation…

3. Trade and commerce power Argument: that the legislation was valid under s 51(i) because the maintenance of a vigorous national economy would be beneficial to interstate trade and commerce, and (perhaps especially) to Australia’s trade with other countries  Hayne, Heydon and Kiefel JJ rejected this argument. Law on trade and commerce power  Trade and commerce does include intangibles, like electricity, communications and banking if used for interstate trade and commerce, particularly interstate financial transactions: Bank of NSW v Cth  Is the law with respect to or within the incidental range of power? o Must ask whether the matter regulated is sufficiently connected to the power that the law in question can be characterised as a law with respect to interstate trade and commerce. 

Per Heydon J:  Said it may not be necessary to demonstrate that the Tax Bonus Act is exclusively related to trade in other countries, but it is necessary to show at least that it has some definable relationship with that class of trade and commerce… First submission:  Submission: that the money injected into the Australian economy would give recipients the means to participate directly in trade and commerce, ‘thereby affecting both directly and indirectly trade and commerce among the states and with other countries’  The Act does not reveal the legislative purpose necessary to support the submission, namely a purpose that the trade and commerce in which recipients of the bonus will participate will be a trade and commerce with other countries, and among the states… Second submission:  Submission: ‘It can be reasonably anticipated that the spending generated by payments under the Act will have a material effect on the amount of trade and commerce with other countries, and among the states…’  However nothing in the provisions of the Act reflects any criterion ensuring that the particular recipients are more likely to make expenditures, if they make expenditures at all, in trade and commerce with other countries, and among the states.  ‘The answer to the question posed by the defendants as the key one is ‘no’. But even if it is assumed that the spending of the bonus payments will have some eventual connection with trade and commerce in other countries, and among the States, it has not been demonstrated [to use the words of Dixon J in Melbourne Corporation, that the connection is more than ‘insubstantial, tenuous or distant’  Hence the legislation cannot be described as made with respect to that kind of trade and commerce. Per Hayne and Kiefel JJ: - Neither the legal nor the practical effect of the Impugned Act is such as to make it a law with respect to either or both of international or interstate trade and commerce - Cth said the main question was whether the Act would have ‘a substantial economic effect on the flow of commercial transactions, goods, services, money, credit among the States?’ - Cth acknowledged that nobody has modelled the precise effect of the flow [of transactions’ among the states - Not a law with respect to trade and commerce with other countries, and among the States.

4. EA power: matters external to Australia and matters of international concern  

Whether the Act could be supported by reference to the external affairs power was not considered by the majority However it was rejected by Hayne, Heydon and Kiefel JJ

Re: geographic externality  Question: merely because a matter, activity or person is geographically external to Australia, does that of itself suffice to support the constitutional validity of a Cth law regulating that person, thing or matter?  Pape supported the narrow view: that to come within the geographic externality limb of s 51(xxix) you need both a geographic externality and a nexus or connection between Australia and the matter, thing or person.  Per Hayne and Kiefel: o The causes of the financial difficulties, which now confront Australia, may be found in events occurring outside Australia. Those events and their consequences have affected many countries. The impugned Act provides for payments to Australian taxpayers with a view to reducing the domestic consequences of those events. The impugned Act is directed, and directed only, to providing a fiscal stimulus to the Australian economy. It is not a law with respect to any matter or thing external to Australia.  Per Heydon J: o It does not follow that a law regulating matters and things within Australia falls within EA powers simply because a cause of the perceived need to regulate those Australian maters and things arose outside Australia. That kind of law relates to domestic affairs, not EA affairs o While an improvement in he condition of Australian affairs might have beneficial effects overseas, the legislation is not specifically structured so as to achieve those effects Re: matters of international concern  Heydon J rejected the argument that the global financial crisis was a matter of ‘international concern’ for having ‘no merits’ for the reasons given in XYZ v v Cth o Basically, just because a law relates to a thing etc outside Australia does not mean that it is a matter of international concern if the law relates to domestic affairs.  Per Hayne and Kiefel JJ: o Held that it is not shown that Australia has undertaken any international obligation sufficient to found the impugned act in the external affairs power. o Neither the Declaration by the leaders of the G-20, not the recommendations of either the IMB or the OECD imposed any obligation on Australia to take action of the kind now in question. Recommendations  The judges who considered the issue seemed either to require that, in order to constitute a basis for legislation, such recommendations must effectively amount to obligations, or, at least, that they must have the kind of precise and specific focus that has been required for treaty obligations before they can be implemented by legislation under s 51(xxix)  Per Hayne and Kiefel JJ (joint judgement, dissenting) o . Basically, held that the recommendations by the international committees were NOT decisions, they were NOT commitments and were NOT binding obligations, they were (at most) recommendations and therefore will not support legislation domestically enacted by invoking the external affairs power (s. 51(xxix) as a basis for implementing that legislation).

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Per Heydon J:  Recommendations by international agencies cannot support the validity of the Tax Bonus Act. Any support they can give to a law enacted in reliance on s 51(xxix) exists only where they are pronounced in order to give effect to the terms of a treaty to which they relate.

5. Nationhood power What is the nationhood power? - There are two variations of the nationhood power: as an implied grant of legislative power, or as an aspect of the executive power (the executive power of the Cth as vested by s 61) - Pape was mostly concerned with the nationhood power as an aspect of the executive power (except Hayne and Kiefel considered (and rejected) legislative aspect) - As an aspect of the executive power, the nationhood power has the ability to invoke s 61 as a source of legislative action (that is, executive power legislatively expressed through the s 51(xxxix) legislative incidental power. -

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Therefore, no power to legislate on matters relation to Australia’s nationhood could arise except through the operation of s 51(xxxix) of the Constitution, as incidental to activities undertaken by the executive government, that are, as Mason J put it in AAP, ‘peculiarly adapted to the government of a nation’. Approved by Brennan J in Davis – added that s 61 also extends to the execution and maintenance of this Constitution.

Cases: - Barton: o By s 61 CC the executive power of the Cth is vested in the Crown and enables the Crown to undertake all executive action, which is appropriate to the position of the Cth under the Constitution and spheres of responsibility vested in it by the Constitution. - In AAP (grants for regional councils), legislation was invalid: Per Mason CJ: o Scope of s 61 was not unlimited o Scope was ascertainable from distribution of legislative powers affected by the Cth itself and the character and status of the Cth as national government o Here, s 61 executive power did not extend to implementing the AAP plan o Said that s 61 confers on the Executive Government power to ‘engage in enterprises and activities peculiarly adapted to the government of a nation which cannot otherwise be carried on for the benefit of the nation. - In Seas and Submerged Lands Case o Per Barwick CJ: apart from the s 51(xxix) EA power, the nationhood aspect of the executive power allowed the Cth to legislate for Australian territorial seas – fact of creation of the Cth - Tasmanian Dams o Existence of nationhood power upheld by all judges except Deane J - Davis v Cth o Cth supported legislation (celebration of bi-centennial) as part of the enabling nationhood power. o Per Brennan J:  Said Mason in AAP provides a good formula for determining the extent of s 61 beyond external affairs  Said that s 61 also extends to the execution and maintenance of this Constitution – this phrase imports the idea of Australia as a nation, i.e. it relates not only to the institutions of government, but more generally to the protection and advancement of the Australian nation  There is no doubt that the Executive government of the Cth has an executive power to protect the nation.  This court has not settled the questions of whether and to what extent it is within the executive power of the Cth to exercise its prerogative powers or to engage in lawful activities or enterprises calculated to advance the national interest

Nationhood power in Pape  On this issue the HC divided 4:3  The majority held that the source of power to make bonus payments could be found in s 61 CC and s 51 (xxxix) (French CJ, Gummow, Crennan and Bell JJ) o That is, the ‘stimulus package’ was valid as an exercise of executive power, and accordingly the legislative enactment of criteria for payments was valid under s 51(xxxix) o s 61 includes nationhood issues – it includes the power for the Cth to take ‘short term measures to meet the adverse economic conditions affecting the nation as a whole, where such measures are on their face peculiarly within the capacity and resources of the Cth government’ (French CJ)  Hayne and Kiefel JJ were prepared to concede, and Heydon J to assume, that the Cth executive power extends a broad concern with ‘national’ issues, but denied this could be used as a rationale for the stimulus package – said it has limits.  Only Heydon held the payments were wholly invalid.  Note federalism concerns: all the judges (with French CJ joining Hayne, Heydon and Kiefel JJ insisting) said that this aspect of the power must be limited by considerations of federalism Scope of executive power: summary To the extent that Cth expenditure goes beyond ‘pure’ spending and into regulating and controlling that expenditure, the latter requires valid Cth legislation o Can be upheld under s 51(xxxix) as incidental to the exercise of executive power under s 61 – i.e., once money has been appropriated for a specific purpose, the legislation specifying how the money should be applied to the purpose is incidental to the appropriation.  Example: Pape: o Re: the making of a payment to taxpayers as part of a ‘fiscal stimulus package’ – held to fell within the ‘existence and character of the Cth as a national government’ aspect of the s 61 executive power, as it was in an effort to minimize the effects of the GFC. o Re: the rights and obligations imposed on the payment of the bonus – supported by s 51(xxxix) – it was incidental to the exercise of executive power under s 61. 

French CJ -

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The relevant aspect of power involves the expenditure of money to support a short-term national fiscal stimulus strategy calculated to offset the adverse effects of a global financial crisis on the national economy Said the legislative measures defining the criteria of that expenditure and matters incidental to it were authorised by s 51(xxxix) French CJ located his analysis of the nationhood issue in a wider overview of the executive power said s 61 is not limited to statutory powers and prerogative French CJ quoted from Mason J in AAP – concluded that the executive power extends to short term fiscal measures to meet adverse economic conditions affecting the nation as a whole, where such measures are on their face peculiarly within the capacity and resources of the Cth government Also quoted the assertion from Mason in Barton, that s 61 enables the Crown to undertake all executive action which is appropriate to the position of the Cth Says it is consistent with Davis per Mason, Brennan, Deane and Gaudron o In this case the Cth had resources and capacity to implement within a short time-frame measures which, on the undisputed facts, were rationally adjudged as adapted to avoiding or mitigating the adverse effects of the GFC affecting Australia as a whole, along with other countries.

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Note federalism concerns: said that the nationhood power cannot set aside the distribution of powers between the Cth and the states and the three arms of Government. Said it was difficult to see how a payment of money to taxpayers is ain any way an interference with the constitutional distribution of powers