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Is the federal tax system unconstitutional?

By Gavin Putland - posted Saturday, 30 September 2000

If you are an employer, you must calculate and remit your employees' PAYE tax. For this work, the Australian Taxation Office does not pay you an hourly rate, or a piece rate, or even a commission-only rate; it merely threatens you with penalties for non-compliance.

Under the New Tax System with the GST, not only employers but also sole traders and volunteer fundraisers have been drafted into the ATO's chain gang, to work without pay for an organization whose annual revenue is more than $160 billion and rising, and whose costs are about 1 percent of revenue.

The morality of this arrangement is not worth discussing. The legal and constitutional implications, however, are more interesting.



The Federal Parliament does not have any power that is not explicitly or implicitly given to it by the Constitution. The absence of a constitutional prohibition is not enough. For example, in last year's Wakim case [163 ALR 270], the High Court struck down the Jurisdiction of Courts (Cross-Vesting) Acts because the Constitution is silent as to whether the Federal Parliament can consent to the vesting of State jurisdiction in Federal courts; even the dissenting Justice Kirby agreed that "Because [the Federal] Parliament is a legislature of limited powers, it requires a constitutional source of power to sustain the validity of any law made by it.''

Therefore the new tax system needs a constitutional "head of power'' under which the Parliament can compel one person to assess and remit another person's tax, and such compulsion must not be repugnant to overriding provisions of the Constitution or other laws. With these requirements in mind, let us consider the new tax system under five headings.

1. "Matters incidental''

The Constitution gives Parliament the power to tax (s.51(ii)) and to do things incidental thereto (s.51(xxxix)).

It may appear prima facie that compliance burdens are matters incidental to taxation and consequently within the power conferred by s.51(xxxix) or a broad interpretation of s.51(ii). To the contrary it may be argued that compliance burdens are unnecessary because the Government itself can assess tax liability; "self-assessment'' and "pay as you go'' are comparatively recent innovations by which governments have turned their citizens into unpaid public servants. According to the latter view, the taxation power and the "matters incidental'' power give the Commonwealth the right to take our money, but not the right to waste our time.


2. "Civil conscription''

If a person cannot afford to hire an accountant, any law making that person responsible for assessing and remitting another person's tax is a clear case of CIVIL CONSCRIPTION, which is not mentioned in the Constitution except by way of prohibition: s.51(xxiiiA) of the Constitution empowers the Parliament to make laws with respect to the provision of medical and dental services, "but not so as to authorize any form of civil conscription''.

In British Medical Association vs. Commonwealth (1949), the High Court held that the Pharmaceutical Benefits Act 1947-1949 was unconstitutional because it required doctors to write prescriptions on Commonwealth forms, which requirement amounted to civil conscription [79 CLR 201-295]. By that standard, the work associated with the new Business Activity Statement forms is also civil conscription.

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The author would like it known that he is not affiliated with the Institute of Taxation Research (ITR) and that the above article is not legal advice. Readers should obtain independent legal advice before acting on any of the opinions expressed above.

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About the Author

Gavin R. Putland is the director of the Land Values Research Group at Prosper Australia.

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