Commonwealth's Power to Change the GST OPINION

Transcription

1 Commonwealth's Power to Change the GST OPINION Introduction 1. We are asked to advise whether the Commonwealth has power to alter the GST without the consent of the States and Territories ("the States") by: increasing the rate; broadening the base; and changing the basis on which OST revenue is shared between the States. GST legislation 2. The primary OST legislation is the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act"). The only provision of the OST Act relevant to the question we have been asked is section 1-3, which provides: 1-3 Commonwealth-State financial relations The Parliament acknowledges that the Commonwealth: (a) (b) will introduce legislation to provide that the revenue from the GST will be granted to the States, the Australian Capital Territory and the Northern Territory; and will maintain the rate and base of the GST in accordance with the Agreement on Principles for the Refonn of Commonwealth State Financial Relations endorsed at the Special Premiers' Conference in Canberra on 13 November 1998.

2 GST intergovernmental agreement 3. A copy of the intergovernmental agreement referred to in section 1-3(b) of the GST Act ("the GST intergovernmental agreement") forms Schedule 2 to the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 (Cth). The GST intergovernmental agreement relevantly provides: Distribution of GST Revenue 7. The Commonwealth will make GST revenue grants to the States and Territories equivalent to the revenue from the GST subject to the arrangements in this Agreement. GST revenue grants will be freely available for use by the States and Territories for any purpose. 8. The Commonwealth will distribute GST revenue grants among the States and Territories in accordance with horizontal fiscal equalisation (HFE) principles subject to the transitional arrangements set out below and other relevant provisions of this Agreement. 9. Details of the payment arrangements are contained in Appendix B to this Agreement. Management of the GST Rate 31. After the introduction of the GST, a proposal to vary the 10 per cent rate of the GST will require: (i) (ii) (iii) the unanimous support of the State and Territory Governments; the endorsement by the Commonwealth Government of the day; and the passage of relevant legislation by both Houses of the Commonwealth Parliament. Management of the GST Base 32. Subject to clauses 34, 35 and 36 of this Agreement, after the introduction of the GST, any proposal to vary the GST base will require: (i) (ii) (iii) the unanimous support of the State and Territory Governments; the endorsement by the Commonwealth Government of the day; and the passage of relevant legislation by both Houses of the Commonwealth Parliament. 33. All future changes to the GST base should be consistent with: (i) the maintenance of the integrity of the tax base; 2

3 (ii) (iii) simplicity of administration; and minimising compliance costs for taxpayers. 34. A proposal to vary the OST base by way of a Ministerial determination under the GST Act and the GST Transition Act will require the unanimous agreement of the Ministerial Council established under clause 40. The Ministerial Council will develop practical arrangements to ensure timely consideration of proposed Ministerial determinations. Questions raised by the GST Act and the GST intergovernmental agreement 4. The provisions of the GST Act and the GST intergovernmental agreement referred to raise three questions: ( 1) What is the effect of section 1-3 of the GST Act in its current form? (2) Can the Commonwealth amend the GST Act without the consent of the States? (3) Is the GST intergovernmental agreement enforceable against the Commonwealth? We shall answer each question in tum. What is the effect of section 1-3 of the GST Act in its current form? 5. Under section 1-3 of the GST Act, the Commonwealth Parliament "acknowledges" that the Commonwealth "will" introduce legislation distributing the GST revenue to the States, and "will" maintain the rate and base of the GST in accordance with the GST intergovernmental agreement. Section 1-3 in its current form does not impose any obligations on either the Commonwealth Parliament or the Commonwealth. It merely records an acknowledgement by Parliament of the present intention of the Commonwealth. There is nothing in section 1-3 (or 3

4 anywhere else in the GST Act) as we read it that requires either the Parliament or the Commonwealth not to change the rate, base or basis of distribution of the GST without the consent of the States. Can the Commonwealth amend the GST Act without the consent of the States? 6. Under section 1 of the Commonwealth Constitution, the legislative power of the Commonwealth is vested solely in the Commonwealth Parliament, which consists of the Queen, the Senate and the House of Representatives. Under section 23 of the Constitution in the case of the Senate, and section 40 in the case of the House of Representatives, any Act may be amended by a simple majority vote in both Houses, provided it subsequently receives the Royal assent under section 58. Section 5l(ii) gives the Parliament specific power to make laws with respect to taxation, while section 96 gives it specific power to grant financial assistance to the States. Sections prescribe the procedures that apply to particular legislation. Section 61 requires the executive power of the Commonwealth to be carried out in accordance with the Constitution and the other laws of the Commonwealth. Nowhere in the Constitution is it contemplated that any legislation made by the Commonwealth Parliament under the powers referred to will require the consent of the States. Such a restriction could only be imposed by amendment of the Constitution itself by referendum under section 128. Accordingly, even if section 1-3 of the GST Act purported to prevent the Commonwealth Parliament amending the GST Act without the consent of the States, it would in our opinion be constitutionally invalid. 4

5 Is the GST intergovernmental agreement enforceable against the Commonwealth? 7. Section l OSA of the Constitution makes specific provision for agreements between the Commonwealth and the States with respect to the public debts of the States. Under section 105A(5), these agreements are "binding upon the Commonwealth and the States parties thereto notwithstanding anything contained in this Constitution or the Constitution of the several States or in any law of the Parliament of the Commonwealth or of any State". The GST intergovernmental agreement does not fall within the ambit of section I 05A, and there is no other provision of the Constitution that would make it enforceable against the Commonwealth. 8. Whether an intergovernmental agreement that is not given legislative force is enforceable is a vexed question. In "Intergovernmental agreements and the executive power" (2005) 16 PLR 294 at 299, Professor Cheryl Saunders says (omitting footnotes): The provisions of an intergovernmental agreement may have legal effect when implemented by statute and an agreement itself may acquire the force of Jaw if a statute so provides: although this is relatively rare. In the absence of legislation, however, the legal effect of an agreement between governments must be determined by reference to the rules that apply to an exercise of executive power. These rules do not clearly distinguish intergovernmental agreements from two other more familiar categories of executive instruments: treaties and contracts. Conceptually, an intergovernmental agreement usually falls between the two, bearing the hallmarks of a political agreement, but between parties who lack the sovereign status of treaty partners. An intergovernmental agreement may in some circumstances be able to be enforced as a contract. Usually, however, lack of precision in the terms of the agreement, or the pot itical nature of the undertakings in it, dispel an intention to create binding legal relations and place it beyond the normal authority of courts to enforce. Even where the conditions for enforcement as a contract otherwise are right, an agreement may specifically deny an intention to create legal relations. 5

6 9. The GST intergovernmental agreement would appear to be largely political in nature. It is thus most unlikely in our view that a court would be prepared to enforce the GST intergovernmental agreement against the Commonwealth, should the Commonwealth decide to change the rate, base or basis of distribution of the GST without the consent of the States: South Australia v Commonwealth (1962) 108 CLR 130 per Dixon CJ at , Taylor J at 149, Windeyer J at Conclusion 10. It is trite that one Commonwealth Parliament cannot bind a future Commonwealth Parliament concerning their equal and constant legislative competence. It is unthinkable that the Commonwealth Executive could do so. The GST intergovernmental agreement is, we think, a prime example of the kind of political compact enforceable (so to speak) only by political sanctions ultimately at the hands of the electors. It follows that it is not truly legally ie judicially enforceable at all: for a court to venture on that course would be, as Sir Owen Dixon put it, to extend the court's "true function into a domain that does not belong to it...." BRET WALKER Fifth Floor, St James' Hall Aickin Chambers 20 May 2013 Liability limited by a scheme approved under Professional Standards Legislation 6