FOR A NARROW INTERPRETATION OF SECTION 90 OF THE AUSTRALIAN CONSTITUTION: THE EXCISE DUTY SYSTEM AS A GUARANTEE OF FREE TRADE IN AN INTERNAL MARKET

* ** GONZALO VILLALTA PUIG AND ROSHAN CHAILE

Section 90 of the Australian Constitution provides the Commonwealth of Australia with the exclusive power to levy excise duties. However, the operation of the section has been problematic. Its terse and protean language has caused the endless problems in its interpretation. As a result, the High Court has defaulted to a broad interpretation of the Commonwealth power to levy excise duties under that section. That broad interpretation is inconsistent with the federal purpose of section 90 and, despite claims to the contrary, does nothing to provide certainty, stability and clarity to the meaning of that section. This article critiques the current interpretative orthodoxy and argues for a narrow interpretation of section 90, one that would limit an excise duty to a tax imposed solely on the production or manufacture of a good.

I INTRODUCTION

This article argues for the adoption of a narrow interpretation of section 90 of the Australian Constitution, which would limit an excise duty to a tax imposed solely on the production or manufacture of a good. The article recognises the inadequate interpretation and the problems that have beset the operation of the excise duty system under section 90. Thus, it critiques the inadequate interpretation of section 90 and attempts to solve the problems that have beset its operation. To do so, the article examines the history of section 90 and the interpretation by the High Court of Australia (the ‘High Court’) of the terse and protean language of that section. As such, it discusses the judicial expansion of the scope of the Commonwealth’s power to levy excise duties and the consequent prohibition on States to levy any taxes on goods. This broad interpretation of the Commonwealth’s power to levy excise duties has caused legal problems and economic problems. From a legal perspective, the terse language of section 90 results in a lack of judicial consensus in relation to the interpretation of that section. Accordingly, the interpretation of section 90 and the tests to give effect to the words of that section are often unstable and unhelpful. As a solution to this problem, the High Court has settled on a broad interpretation of the section which, while it ensures some degree of certainty and consistency, ignores the federal purpose of that section. From an economic perspective, this broad interpretation of section 90 has been a partial cause of the vertical fiscal imbalance between the Commonwealth and its States, whereby the States lack the ability to raise the revenue necessary to meet their expenditure responsibilities. The article argues that the adoption of a narrow interpretation of section 90 could solve the problems that

* Gonzalo Villalta Puig, BA LLB(Hons) GradDipLegPrac(Merit) ANU, LLM Canberra, GradCertHigherEd LLM(GBL) SJD La Trobe, LLD Navarra; FHEA; Professor of Law, The Chinese University of Hong Kong; Barrister and Solicitor of the High Court of Australia; Barrister and Solicitor of the High Court of New Zealand; Solicitor of the Supreme Court of England and Wales. ** Roshan Chaile, BIR LLB(Hons) La Trobe; Lawyer, Clayton Utz.

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inevitably arise from the current but broad interpretation of the section. A narrow interpretation of section 90 would limit an excise duty to a tax imposed solely on the production or manufacture of a good.

II A CRITIQUE OF SECTION 90 OF THE AUSTRALIAN CONSTITUTION

Part II introduces and critiques section 90, which grants to the Commonwealth the exclusive power to raise revenue through the imposition of excise duties. The operation of section 90 has been problematic not only for the High Court but also for the Commonwealth polity. Part II explains and then, as a solution to the problems that have marked the operation of section 90, advocates for a shift in the interpretative approach to that section. The power of the Commonwealth to levy excise duties arises from the combination of a number of provisions in the Australian Constitution. Section 51(ii) gives the Commonwealth the power to make laws with respect to taxation, and section 86 transfers the power of the States to levy excise duties to the Commonwealth. Section 90 makes this power exclusive. It provides that:

[o]n the imposition of uniform duties of customs the power of the [Federal] Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive. [emphasis added]

Section 90 has had a colourful history of interpretation in the High Court. The generality of the language of section 90 provides little, if any, guidance as to the meaning of the phrase ‘duties of excise’. The difficulty lies in the fact that an excise duty is an ambiguous concept, which means that there are no precise rules to guide the High Court when it determines whether a tax is, or is not, an excise duty.1 Accordingly, despite much judicial exegesis, the High Court has struggled to interpret section 90, and many of its justices have often disagreed as to the meaning of ‘duties of excise’.2 The interpretation of section 90 endures as one of the most elusive in Australian constitutional interpretation.3 The lack of judicial consensus as to the interpretation of section 90 has often led to anomalous judgments, which has damaged the principled development of precedent on which the Australian common law legal order rests.4 Few things are clear about section 90, but the following propositions appear to be, more or less, settled: an excise duty is a tax5 upon goods;6 it may be imposed on a good

1 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 425 (Mason CJ and Deane J). 2 Parton v Milk Board (Victoria) (1949) 80 CLR 229, 244 (Latham CJ), 251 (Rich and Williams JJ); Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 425 (Mason CJ and Deane J), 465 (Dawson J), 488 (McHugh J); Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 606 (Dawson J); Matthews v Chicory Marketing Board (Victoria) (1938) 60 CLR 263, 291 (Dixon J); Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 616 (Gibbs CJ); Michael Coper, ‘The High Court and section 90 of the Constitution’ (1976) 7 Federal Law Review 1, 1. 3 Peter Hanks, Patrick Keyzer and Jennifer Clarke, Australian Constitutional Law: Commentary and Materials (7th ed, 2004) 695. 4 The Rt Hon Sir Harry Gibbs, ‘A Hateful Tax’? Section 90 of the Constitution, Sir Society, at 1 November 2010. 5 That is, ‘a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered’: Matthews v Chicory Marketing Board (Victoria) (1938) 60 CLR 263, 270 (Latham CJ); Air Caledonie

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before that good comes into existence;7 it may be imposed on the initial production8 or manufacture9 of a good and it may be imposed on the first sale of a good after its production10 or on any sale in the course of its distribution,11 but not on its sale to the consumer.12 A tax imposed on a taxpayer because of their relationship with a good13 or a tax imposed on a taxpayer for the entitlement to produce or manufacture a good is not an excise duty.14 However, since the High Court has oscillated between competing interpretations of section 90, it would be dangerous to regard any of these propositions as permanently settled. A fact that complicates the interpretation of section 90 is the similar support that the High Court has historically shown for the two competing interpretations of that section — a narrow interpretation and a broad interpretation. In its first decision on section 90 by justices who themselves were involved in the drafting of the Australian Constitution, (‘Peterswald’),15 the High Court settled on a narrow interpretation of the phrase ‘duties of excise’ and held that an excise duty is a tax ‘imposed upon goods in relation to quantity or value when produced or manufactured, and not in the sense of a direct tax or personal tax’.16 However, partly in response to the ambiguity of the phrase ‘duties of excise’, subsequent justices of the High Court have shifted away from the narrow interpretation of that section and expressed their support for a broader interpretation of excise duties. The last High Court decision on section 90, Ha v New South Wales17 (‘Ha’), held an excise duty to be a tax ‘on the production, manufacture, sale or distribution of goods, whether of foreign or domestic origin’.18 Ha, like several other cases on section 90, involved a 4:3 split of the High Court bench. This division demonstrates the lack of judicial unanimity that often pervades High Court decisions on section 90. Of these two alternative interpretations of section 90, the narrow one (that an excise duty is a tax on the production of a good) is more suitable than the wide one

International v Commonwealth (1988) 165 CLR 462; Airservices Australia v Canadian Airlines International (1999) 167 ALR 392. 6 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 429 (Mason CJ and Deane J); Parton v Milk Board (Victoria) (1949) 80 CLR 229, 259 (Dixon J); See, generally, Browns Transport Pty Ltd v Kropp (1958) 100 CLR 11; Peterswald v Bartley (1904) 1 CLR 497. 7 Matthews v Chicory Marketing Board (Victoria) (1938) 60 CLR 263. 8 Parton v Milk Board (Victoria) (1949) 80 CLR 229; Matthews v Chicory Marketing Board (Victoria) (1938) 60 CLR 263; MG Kailis v Western Australia (1974) 130 CLR 245. 9 Attorney-General v Homebush Flour Mills Ltd (1937) 56 CLR 390; Swift Australian Co Ltd v Boyd Parkinson (1962) 108 CLR 189; John Fairfax & Sons Ltd v (1907) 39 CLR 139. 10 John Fairfax & Sons Ltd v New South Wales (1907) 39 CLR 139; The Commonwealth and Commonwealth Oil Refineries Ltd v South Australia (1926) 38 CLR 408. 11 Parton v Milk Board (Victoria) (1949) 80 CLR 229; Victoria v IAC (Wholesale) Pty Ltd (1970) 121 CLR 42; (1997) 189 CLR 465. 12 Dickensons Arcade Pty Ltd v Tasmania (1974) 130 CLR 177; Parton v Milk Board (Victoria) (1949) 80 CLR 229, 261 (Dixon J); Neil McLeod, ‘State Taxation: Unrequited Revenue and the Shadow of section 90’ (1994) 22 Federal Law Review 476, 484. Cf Matthews v Chicory Marketing Board (Victoria) (1938) 60 CLR 263, 304 (Dixon J). 13 Browns Transport Pty Ltd v Kropp (1958) 100 CLR 11; Bolton v Madsen (1963) 110 CLR 264; HC Sleigh Ltd v South Australia (1977) 136 CLR 475. 14 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 482 (Gaudron and Toohey JJ). 15 Peterswald v Bartley (1904) 1 CLR 497. 16 Peterswald v Bartley (1904) 1 CLR 497, 509 (Griffith CJ). 17 Ha v New South Wales (1997) 189 CLR 465. 18 Ha v New South Wales (1997) 189 CLR 465, 499 (Brennan CJ, McHugh, Gummow and Kirby JJ).

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(that an excise duty is a tax on the production or distribution of a good) to the Australian constitutional system and which the section below discusses. Indeed, the expansion of the meaning of ‘duties of excise’ in section 90 to include a tax on the production or distribution of a good until it reaches the consumer is unfortunate. It brings with it legal problems and economic problems.19 From a legal perspective, the broad interpretation of section 90 is, arguably, incorrect because it tends to subsume almost all taxes on goods into the definition of ‘duties of excise’ in section 90, including taxes that are not commonly perceived as excise duties. This approach is inconsistent with the purpose of section 90 and the widely accepted notion of excise duties as a limited category of taxes on goods. 20 From an economic perspective, the broad interpretation of section 90 contributes to a vertical fiscal imbalance between the Commonwealth and the States, whereby the States are unable independently to raise the revenue that they require to meet their expenditure responsibilities. This Part of the article critiques the interpretation by the High Court of section 90 and argues that limiting excise duties to taxes imposed solely upon the production or manufacture of a good would solve the legal and economic problems that have resulted from the broad interpretation of the section. 21 Section A analyses how the broad interpretation of section 90 has been a partial cause of the vertical fiscal imbalance between the Commonwealth and the States. Section B argues that the High Court’s expansion of section 90 is based on unsound economic reasoning and, for that reason, should be repudiated.

A The Vertical Fiscal Imbalance in Australia’s Federal System

‘Vertical fiscal balance’ describes:

a situation in which governments at each level [in a federation] can command the financial resources necessary for them to carry out their expenditure responsibilities and be held accountable for both spending and taxing decisions.22

Accordingly, a vertical fiscal imbalance arises where one level of government is unable to raise the revenue required to meet its expenditure responsibilities. In Australia, the Commonwealth’s superior taxing power, aided in part by the broad interpretation of section 90, means that the States are unable independently to raise the revenue that they require to meet their expenditure responsibilities and must instead rely on financial grants from the Commonwealth. The broad interpretation of section 90 has contributed to the vertical fiscal imbalance between the Commonwealth and the States because, by the principle that a tax on a good in the course of its production or distribution to the consumer is an excise duty, the High Court has effectively shut the States out from the field of taxation on goods.23 This wide interpretation of the phrase ‘duties of excise’ means that section

19 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 468 (Dawson J). 20 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 465, 474 (Dawson J). 21 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 473 (Dawson J). 22 Rowan McMonnies, ‘Ngo Ngo Ha and the High Court v New South Wales: Historical Purpose in History and Law’ (1999) 27 Federal Law Review 471, 494. 23 Peter Hanks, Constitutional Law in Australia (1st ed, 1991) 260-1; Chris Caleo, ‘Section 90 and Excise Duties: A Crisis of Interpretation’ (1987) 16 Melbourne University Law Review 296, 296.

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90 now covers a large group of taxes on goods, including taxes that the States might have otherwise expected to be able to levy. As a result, the States are unable to access a potentially large base of taxing revenue and, thereby, to raise the revenue that they require to meet their expenditure responsibilities.24 For example, the decisions of the High Court in Western Australia v Hamersley Iron Pty Ltd [No 1] 25 and Western Australia v Chamberlain Industries Pty Ltd,26 which held that section 90 prohibited the States from the imposition of certain receipt duties, deprived the States of, approximately, $88.4 million in tax revenue for the 1971 financial year.27 As a response to their diminishing ability to tax goods, the States have had to devise creative forms of taxation that are inefficient, inequitable, and economically undesirable.28 The broad interpretation of section 90 by the High Court has severely impaired the fiscal freedom of the States.29 The High Court even acknowledged that its judgment in Ha would have the ‘most serious implications for the revenues of the States’. 30 In the aftermath of Ha, the Commonwealth announced that it would introduce measures to protect the revenues of the States.31 Nonetheless, the States are at the financial mercy of the Commonwealth,32 and the broad interpretation of section 90 has been the subject of critique as ‘one of the greatest impediments preventing achievement of a rational and lasting division of financial powers in the Australian federal system’.33 Now that Section A has analysed the contribution of the broad interpretation of section 90 to the vertical fiscal imbalance between the Commonwealth and the States, Section B will explain why narrowing the meaning of ‘excise duties’ to taxes solely upon the production or manufacture of a good would solve the legal and economic problems that have resulted from the broad interpretation of that section.

24 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 489 (McHugh J); Nicolee Dixon, ‘Section 90 – Ninety Years On’ (1993) 21 Federal Law Review 228, 228; Neil Halliday, ‘Notes: Ha & Anor v State of New South Wales & Ors; Walter Hammond & Associates v State of New South Wales & Ors’ (1998) 20 Sydney Law Review 158, 158. 25 Western Australia v Hamersley Iron Pty Ltd [No 1] (1969) 120 CLR 42. 26 Western Australia v Chamberlain Industries Pty Ltd (1971) 121 CLR 1. 27 Caleo, see above n 23, 316. 28 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 614 (Dawson J); Logan Downs Pty. Ltd v Queensland (1977) 137 CLR 59, 85 (Murphy J); Peter Hanks, ‘Section 90 of the Commonwealth Constitution: Fiscal Federalism or Economic Unity?’ (1986) 10 Adelaide Law Review 365, 368, 380; Rodney Fisher and Jacqueline McManus, ‘The Long and Winding Road: A Century of Centralisation in Australian Tax’ (Discussion Paper Series No 8, Australian Taxation Studies Program, 2002) 16-7; Caleo, see above n 23, 296. 29 Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 618 (Gibbs CJ); Brian Opeskin, ‘Section 90 of the Constitution and the Problem of Precedent’ (1986) 16 Federal Law Review 170, 176-7. 30 Ha v New South Wales (1997) 189 CLR 465, 503 (Brennan CJ, McHugh, Gummow and Kirby JJ). 31 Hanks et al, see above n 3, 756. 32 Fisher and McManus, see above n 28, 21; Alfred Deakin, Federated Australia: Selections From Letters to the Morning Post 1900-1910 (1968) 97. 33 R L Mathews and W R C Jay, Federal Finance (1st ed, 1972) 318. Cited with approval in Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 606 (Dawson J) and Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 617 (Gibbs CJ).

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B The Argument for Excise Duties as a Tax Solely on the Production or Manufacture of a Good

In its first decision on section 90, Peterswald,34 the High Court defined an excise duty as a tax solely on the production or manufacture of a good.35 But this statement of narrow principle, by justices who themselves were involved in the drafting of the Australian Constitution has, over time, been expanded to include taxes imposed at any point in the production or distribution of a good before it reaches the consumer.36 This Section argues that it was an error for the High Court to depart from the narrow interpretation of section 90 in Peterswald. It reviews the economic arguments that the High Court has made to justify its broad interpretation of section 90 and concludes that the expansion of section 90 to include taxes imposed at any point in the production or distribution of a good before it reaches the consumer relies on a poor economic rationale. It then explains that, while a broad approach may guarantee certainty and clarity in the interpretation of section 90 by subsuming almost all taxes on goods, it is inconsistent with the federal purpose of section 90 and the fundamental proposition that an excise duty is a unique tax on goods.37 In summary, a narrow interpretation of section 90 would ensure not only coherence with its federal purpose and the notion of excise duties as a limited category of taxes on goods but also greater certainty and clarity in the interpretation of that section. These last two considerations are now and in that order the subject of study.

1 The unsound economics of the broad interpretation of section 90

An economic argument made by the High Court to justify its broad interpretation of section 90 is that a tax on a good at any point in the course of its distribution to the consumer has the same effect as a tax on the production or a manufacture of a good, and, for that reason, the two taxes should be grouped together as excise duties.38 That effect is the ability of both taxes to enter into the cost of a good and affect the retail price payable by the consumer.39 Geoffrey Sawer, a doyen of Australian constitutional law, has rejected this economic argument of the High Court as one based on unresearched economic theory.40 Apart from the damning critique of Sawer, there are two major reasons why this economic argument by the High Court should not be accepted. The first reason is that, while in some cases a tax on a good at any point in the course of its distribution to the

34 Peterswald v Bartley (1904) 1 CLR 497. 35 Peterswald v Bartley (1904) 1 CLR 497. 36 The Commonwealth and Commonwealth Oil Refineries Ltd v South Australia (1926) 38 CLR 408, 426 (Isaacs J); Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 467-8 (Dawson J); Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 445 (Brennan J); Ha v New South Wales (1997) 189 CLR 465, 499 (Brennan CJ, McHugh, Gummow and Kirby JJ); Caleo, see above n 23, 301. 37 The mere fact that excise duties may have social purposes, like the discouragement of particular forms of conduct (for example, binge drinking), and that they are not a mere revenue raising tool suggests that excise duties are a special creature of taxation and should not be treated as arbitrarily including all taxes on goods. 38 Parton v Milk Board (Victoria) (1949) 80 CLR 229, 260 (Dixon J); Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 661 (Mason J). 39 Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 661 (Mason J); Caleo, see above n 23, 303; Opeskin, see above n 29, 174. 40 G Sawer ‘The Future of State Taxes: Constitutional Issues’ in Mathews, R L (ed), Fiscal Federalism: Retrospect and Prospect (1974); Sir Harry Gibbs, a former chief justice of the High Court, has similarly remarked that the economic rationale of the High Court in relation to section 90 is open to critique: Gibbs, see above n 4.

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consumer may have the same effect as a tax on the production or a manufacture of a good, it is a mistake to assume that the effect of the two taxes will always be the same. The second reason is that this economic theory rests on the idea of an excise duty as an indirect tax, which has long been discredited by both the High Court and economists alike as an inadequate criterion of an excise duty. Since there are a number of taxes that add indirectly to the cost of a good and affect the retail price payable by the consumer, the problem that results from the acceptance by the High Court of this poor economic argument is that section 90 now applies to a large group of taxes, including those taxes that were never intended to be excise duties.41 The concept of indirect taxation makes it impossible to differentiate between excise duties and other forms of taxation,42 which is of concern because the phrase ‘duties of excise’ in section 90 was not intended as an umbrella term to cover all taxes on goods. For that reason, acceptance of this poor economic argument has contributed to the vertical fiscal imbalance between the Commonwealth and the States because it impairs the ability of the States to tax goods. A tax on a good at any point in its distribution to the consumer may have the same effect as a tax on the production or manufacture of that good. That claim is uncontroversial. However, it is a mistake to assume that a tax on a good at any point in its distribution will always have the same effect as a tax on the production or manufacture of that good. A tax on the production or manufacture of a good may have a significantly different effect than a tax on its distribution because a tax on the production or manufacture of a good affects its relative price; a tax on the distribution of local and imported goods does not.43 A complementary argument made by the High Court is that, because the two taxes supposedly have the same effect, a tax on the distribution of a good is, in effect, a tax on its production or manufacture. Yet this argument ignores the fact that, while a tax on the distribution of a good will always affect the retail price of that good, a tax on the production or a manufacture of a good does not always have a direct connection with the retail price of that good — that is, market forces will determine the impact, if any, that the tax on the production or manufacture will have on the retail price of the good.44 It is for this reason that the minority of Dawson, Gaudron and Toohey JJ in Ha pointed out that:

it is not possible to discern any direct and necessary connection between the ultimate price of goods and their cost of production and manufacture … market forces will determine the price upon demand and hence upon production or manufacture. For that reason it is not possible to say that a tax upon a step in the distribution of goods is in effect a tax upon their production or manufacture.45

41 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 610 (Dawson J); The Australian concept of excise duties was always intended to be limited to distinct and identifiable taxes on goods. During the convention debates leading to federation, it was argued that excise ‘would be covered by the definition [of] … a duty chargeable on the manufacture and production of commodities’. And, moreover, the drafters of the Constitution ‘should give attention to this matter so as not to be carried further than [the founding fathers] intend to go. In modern times, excise is used as a very wide term.’: Official Record of the Debates of the Australasian Federal Convention, Second Session (Sydney, 2 September 1897 – 24 September 1897) 1065. 42 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 610 (Dawson J). 43 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 601 (Dawson J); Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 627 (Gaudron and Toohey JJ). 44 Ha v New South Wales (1997) 189 CLR 465, 509 (Dawson, Toohey and Gaudron JJ). 45 Ha v New South Wales (1997) 189 CLR 465, 509 (Dawson, Toohey and Gaudron JJ).

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Therefore, it is a mistake to assume that a tax imposed on a good at any point in its distribution to the consumer will always have the same effect as a tax on its production or manufacture. It is an even greater mistake to assume, on the basis of that economic argument, that the two taxes are synonymous and, thus, a tax imposed on a good at any point in the course of its distribution to the consumer is an excise duty or that a tax imposed on a good at any point in the course of its distribution to the consumer is, in effect, a tax on its production or manufacture. A tax on the production or manufacture of a good may have the same effect as a tax imposed on that good at any point in the course of its distribution, but it may also have a completely different effect.46 Another factor that indicates the weakness of the High Court’s economic argument is the fact that it is based on the concept of indirect taxation.47 An indirect tax is a tax the economic burden of which may be passed on by the taxpayer to the consumer.48 A tax on the production, manufacture or distribution of a good may be perceived to be indirect because the taxpayer is able to add the cost of the tax to the price of the good and pass on the economic burden of the tax to the consumer.49 The economic argument of the High Court posits that, because the economic burden of a tax on the production or manufacture of a good and a tax imposed at any point in the course of the distribution of a good can both be passed on to the consumer, they are, in effect, the same.50 However, both economists and the High Court have discredited the relationship between indirect taxation and excise duties.51 In fact, Fullagar J once remarked that it was a pity that the distinction between direct taxation and indirect taxation was ever mentioned in relation to section 90. 52 The concept of indirect taxation does not shed any light on the interpretation of section 9053 and, accordingly, the High Court’s economic argument for the expansion of section 90 should be regarded as unsound. The problem with this economic argument is that, because every tax imposed on a producer, manufacturer, or distributor is likely to enter into the cost of a good and affect its retail price,54 section 90 now applies to a significantly large group of taxes. The decisions of the High Court in Western Australia v Chamberlain Industries Pty Ltd55 and Logan Downs Pty Ltd v Queensland56 suggest that any tax, no matter how broad and general its legal incidence, will be considered an excise duty if it falls on the production, manufacture, or distribution of a good and it affects the retail price payable by the consumer.57 This suggestion is at odds with the fact that, in Australia, excise

46 Sawer, see above n 40, 203-4; See also Caleo, see above n 23, 317. 47 Ha v New South Wales (1997) 189 CLR 465, 509 (Dawson, Toohey and Gaudron JJ); Caleo ibid. 48 J Stuart Mill, Principles of Political Economy (1848); See also. Bank of Toronto v Lambe (1887) 12 App Cas 575; R v Caledonian Collieries [1928] AC 358; Atlantic Smoke Shops Ltd v Conlon [1943] AC 550. 49 Hanks, see above n 23, 249. 50 Caleo, see above n 23, 303. 51 Ha v New South Wales (1997) 189 CLR 465, 509 (Dawson, Toohey and Gaudron JJ); Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 602 (Dawson J); Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529, 553 (Fullagar J); H W Arndt, ‘Judicial Review under s 90 of the Constitution – An Economist’s View – Part 1’ (1952) 25 Australian Law Journal 667, 674; Caleo, ibid. 52 Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529, 553 (Fullagar J). 53 Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529. 54 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 610 (Dawson J). 55 Western Australia v Chamberlain Industries Pty Ltd (1971) 121 CLR 1. 56 Logan Downs Pty Ltd v Queensland (1977) 137 CLR 59. 57 Caleo, see above n 23, 300.

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duties were only intended to form a limited category of taxes, distinguishable from other taxes on goods.58 Indeed, the drafters of the Australian Constitution were careful to distinguish the phrase ‘duties of excise’ as it was employed in section 90 from excise duties in the United Kingdom, where that phrase referred to a mass of heterogeneous taxes that could not be collected through HM Revenue & Customs. 59 It is the illogicality of this economic argument that prompted Murphy J to ask:

If taxes are to be treated as duties of excise because they indirectly add to costs of production or manufacture of goods, are taxes on industrial land and payroll taxes to be treated as duties of excise?60

Other High Court justices have likewise pointed out that this economic argument could extend section 90 to include taxes that are not excise duties but, nonetheless, affect the retail price of a good, like land tax, payroll tax, and municipal rates levied on producers, manufacturers, or distributors.61 The expansion of section 90 was influenced, in part, by unsound economic arguments, which is understandable given that High Court justices are not economists. Nevertheless, the broad interpretation should be rejected. It rests on the erroneous assumption that a tax imposed on a good at any point in its distribution to the consumer has the same effect as a tax on its production or manufacture and, for that reason, the two taxes should be considered to be excise duties. As a matter of economics, the narrow interpretation of section 90 is more defensible and, for that reason, should be accepted.

2 The certainty, clarity and coherence of the narrow interpretation of section 90

The most basic reason given by the High Court for its broad interpretation of section 90 is that it was necessary to achieve the federal purpose of that section, which, in its opinion, was to give the Commonwealth ‘real control [over] the taxation of commodities (emphasis added)’. 62 The influence of this judicial belief on the interpretation of section 90 is significant. For the High Court justices who give broad interpretation to the Commonwealth’s power to tax commodities under section 90, it provides incontrovertible vindication and, more importantly, gives rise to two primary objections against the narrow interpretation of section 90. The first objection against the narrow interpretation of section 90 is that it allows the States the ability to levy taxes on the distribution and sale of goods, which undermines the Commonwealth’s absolute control over the taxation of commodities. The second objection against the narrow interpretation is that it requires a strict

58 Ha v New South Wales (1997) 189 CLR 465, 505 (Dawson, Toohey and Gaudron JJ); Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 610, 612 (Dawson J); Parton v Milk Board (Victoria) (1949) 80 CLR 229, 245 (Latham CJ); Hanks, see above n 23, 242. 59 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 606 (Dawson J); HC Sleigh Ltd v South Australia (1977) 136 CLR 475, 515 (Jacobs J); Peterswald v Bartley (1904) 1 CLR 497, 508-9 (Griffith CJ). 60 Logan Downs Pty. Ltd v Queensland (1977) 137 CLR 59, 84 (Murphy J). 61 Gosford Meats v New South Wales (1985) 155 CLR 368, 416 (Dawson J); Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 617 (Gibbs CJ). 62 Parton v Milk Board (Victoria) (1949) 80 CLR 229, 260 (Dixon J); Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 429 (Mason CJ and Deane J); Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 585-6 (Mason CJ, Brennan, Deane and McHugh JJ); Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 632 (Mason J); Western Australia v Chamberlain Industries Pty Ltd 1971) 121 CLR 1, 17 (Barwick CJ).

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relationship between the tax that is being imposed and the act of producing or manufacturing a good. That requirement, purportedly, leads to the triumph of form over substance. 63 Forceful as these objections are, however, they are themselves subject to critique. It is unlikely that the federal purpose of section 90 was to give the Commonwealth real control over the taxation of commodities. The weight of historical evidence,64 and the words of the Constitution itself,65 point to the federal purpose of section 90 as the creation and preservation of a customs union.66 Section 90 was central to the establishment of a Commonwealth economic union; otherwise, Australia would be no more than ‘an association of States each with its own separate economy’.67 At the time of Federation, the colonies imposed rates of excise duty in accordance with their own trade interests, which significantly hampered free trade among them.68 Upon reflection, the colonies realised that the lack of free trade among them had actually damaged their interests, and would only continue to cause further damage while they imposed competing rates of excise duty.69 Federation, thus, presented an opportunity for the colonies to ‘immensely economise their strength and their resources … and waste no more time in barren rivalry’.70 One of the fundamental purposes of Federation then became the achievement of ‘inter-colonial free trade on the basis of a uniform tariff’.71 To achieve this aim, the drafters of the Constitution fashioned two concomitant provisions — section 90 and section 92. Section 92 provides for the absolute freedom of trade, commerce and intercourse among the States. 72 From its contextual and historical investigations, the High Court concluded in Cole v Whitfield73 that, at least in respect of trade and commerce, a free trade interpretation of s 92 was both legitimate and necessary:

The purpose of the section is clear enough: to create a free trade area throughout the Commonwealth and to deny to Commonwealth and States alike a power to prevent or obstruct the free movement of people, goods and communications across State boundaries.74

An essential feature of any guarantee of free trade among the States is that the Commonwealth must have absolute control over trade policies and the imposition of tariffs and customs duties. That absolute control would be neutered if the States were able to impose competing rates of excise duty. The imposition of different rates of

63 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 473 (Dawson J); Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 601 (Dawson J); Opeskin, see above n 29, 191. 64 Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 616 (Gibbs CJ); McLeod, see above n 12, 484; Coper, see above n 2, 39. 65 Ha v New South Wales (1997) 189 CLR 465, 508 (Dawson, Toohey and Gaudron JJ). 66 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 611 (Dawson J); Ha v New South Wales (1997) 189 CLR 465, 508 (Dawson, Toohey and Gaudron JJ): McLeod, see above n 12, 484. 67 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 585 (Mason CJ, Brennan, Deane and McHugh JJ). 68 Opeskin, see above n 29, 171; McMonnies, see above n 22, 474. 69 Opeskin, ibid. 70 W Harrison Moore, The Constitution of the Commonwealth of Australia (2nd ed, 1910) 22-23. 71 Cole v Whitfield (1988) 165 CLR 360, 386. 72 G Villalta Puig, The High Court of Australia and Section 92 of the Australian Constitution (2008). 73 Cole v Whitfield (1988) 165 CLR 360. 74 Cole v Whitfield (1988) 165 CLR 360, 391

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excise duty would cause distortions in the market,75 which would severely limit free trade among the States 76 and defeat the Commonwealth’s control over its trade policies. Indeed, the main federal purpose of section 90 is to protect free trade. If the Commonwealth lacked power over excise duties, its power to impose uniform customs duties,77 ensure free trade,78 and stimulate local production and manufacture79 would be compromised. Otherwise, differential rates of taxation could distort local markets within the Commonwealth.80 As an example, the stimulus of a Commonwealth customs duty on motor vehicle imports could be negated if a State were able to impose an excise duty on motor vehicles produced in that State. Any competitive benefit that locally produced motor vehicles would have enjoyed from the customs duty on overseas motor vehicles would be cancelled by the imposition of a countervailing excise duty. That is, the Commonwealth would not have absolute control over its trade and tariff policies. The drafters of the Constitution recognised that the Commonwealth needed to have absolute control over excise duties in order to prevent any misuse by the States of such duties in order to sabotage Commonwealth policies to maintain free trade among the States. Section 90 was thus conceived as an appurtenant provision to section 92, designed to protect the integrity of that section by safeguarding the Commonwealth’s absolute control over its tariff policies and the imposition of customs duties.81 In the words of Deane J:

[Section 90 was a] necessary ingredient of any acceptable scheme for achieving the abolition of internal customs barriers which was the essential objective of Federation and for ensuring that the people of the Commonwealth were guaranteed equality as regards the customs and excise duties which they were required to bear and the bounties which they were entitled to receive.82

75 Ha v New South Wales (1997) 189 CLR 465, 495 (Brennan CJ, McHugh, Gummow and Kirby JJ). Coper, see above n 2, 21; Caleo, see above n 23, 306. 76 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 585 (Mason CJ, Brennan, Deane and McHugh JJ). 77 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 466 (Dawson J). 78 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 609 (Dawson J); Ha v New South Wales (1997) 189 CLR 465, 497 (Brennan CJ, McHugh, Gummow and Kirby JJ). 79 Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 631 (Mason J). 80 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 585 (Mason CJ, Brennan, Deane and McHugh JJ). 81 See Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 616 (Gibbs CJ); Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 426 (Mason CJ and Deane J), 465-66 (Dawson J), 479 (Gaudron and Toohey JJ); Ha v New South Wales (1997) 189 CLR 465, 511-2 (Dawson, Toohey and Gaudron JJ); Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 586 (Mason CJ, Brennan, Deane and McHugh JJ); Ha v New South Wales (1997) 189 CLR 465, 506 (Toohey, Gaudron and Dawson JJ); Hanks et al, see above n 3, 755; Dixon, see above n 24, 235, 242; Coper, see above n 2, 39; Hanks, see above n 23, 242. 82 Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 685 (Deane J).

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More recently, in Betfair Pty Ltd v Western Australia,83 the High Court merged the federal purpose of section 90 and section 92 in the following terms:

[T]here have been significant developments in the last 20 years in the Australian legal and economic milieu in which s 92 operates. The first of these concerns an interpretation given to Ch IV of the Constitution by this Court in 1997. In Ha v New South Wales the Court recognised … at a more general level, the place occupied by both s 90 and s 92 in Ch IV of the Constitution. The creation and fostering of national markets would further the plan of the Constitution for the creation of a new federal nation and would be expressive of national unity.84

The High Court concluded that ‘the trade and commerce of which s 92 speaks is not limited to dealings in goods and this indicates that Ch IV implemented a broader scheme of political economy’.85 In sum, section 90 was central to Australia’s federation debates. The distinction between protectionists and free traders informed Australian colonial politics. Moreover, customs duties were a major source of revenue for the colonial governments. Section 90 was, therefore, of symbolic importance as well as practical importance. Moreover, it was to be understood as part of a package that transformed a bundle of colonies into a federation with a central government armed with all the accoutrements of a modern state. Accordingly, the federal purpose of section 90 is quite limited. It was designed to effectuate a customs union and not to confer upon the Commonwealth absolute power over the taxation of commodities. The strongest objection against the narrow interpretation of section 90 is that, if adopted, it would attach only a ‘formal significance’ to that section86 and it would expose the Commonwealth’s power over excise duties to ‘evasion and subterfuge’.87 That argument is based on the belief that the narrow interpretation of section 90 requires evidence of the existence of a strict relationship between a State tax and the act of production or manufacture of a good before the High Court can hold that tax to be in contravention of section 90. Therefore, even if a State tax indirectly burdens the production or manufacture of a good, the States may be able to circumvent section 90 by legislation that does not, on its face, evince a strict relationship between the State

83 Betfair Pty Ltd v Western Australia (2008) 234 CLR 418. On Betfair Pty Ltd v Western Australia, see generally A Simpson, ‘Betfair Pty Ltd v Western Australia’ (2008) 19 Public Law Review 191; E Ball, ‘Section 92 and the Regulation of E-Commerce: A Casenote on Betfair Pty Ltd v Western Australia’ (2008) 36 Federal Law Review 265; B Brown, ‘Bet Fair and Bet Far: A New Frontier in Freedom of Interstate Trade and Commerce’ (2008) 82 Law Institute Journal 36; A Buckland and S Thornton, ‘Freedom of Interstate Betting’ (2008) 16 Litigation Notes 13; G Wright, ‘Recent Developments: Betfair Limited v Western Australia (2008) 82 ALJR 600; [2008] HCA 11’ (2008) Bar News: Journal of the NSW Bar Association 12;W Pengilley, ‘Constitutional Freedom of Trade and Competition Principles’ (2008) 24 Australian and New Zealand Trade Practices Law Bulletin 25: N Oreb. ‘Betting Across Borders: Betfair Pty Limited v Western Australia’ (2009) 31 Sydney Law Review 607. See particularly G Villalta Puig, ‘Section 92 since Betfair Pty Ltd v Western Australia’ (2009) 11(4) Constitutional Law and Policy Review 152. 84 Betfair Pty Ltd v Western Australia (2008) 234 CLR 418; [2008] HCA 11 at [12], 85 Betfair Pty Ltd v Western Australia (2008) 234 CLR 418; [2008] HCA 11 at [22]. 86 Matthews v Chicory Marketing Board (Victoria) (1938) 60 CLR 263, 304 (Dixon J); Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 586 (Mason CJ, Brennan, Deane and McHugh JJ). 87 Matthews v Chicory Marketing Board (Victoria) (1938) 60 CLR 263, 304 (Dixon J); See also, Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 633 (Mason J).

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tax and the act of production or manufacture.88 The High Court would then simply judge the form rather than the substance of the legislation imposing the State tax. However, that claim is a legal fiction. The narrow interpretation of section 90 can give rise to a legal test of substance that is capable of consistent and predictable application to State legislation.89 Further, it is also coherent with the actual federal purpose of section 90, namely, the creation of a customs union. A number of justices90 have argued that the narrow interpretation of section 90 can indeed be a matter of substance. In this respect, the reference is the judgment of Fullagar J in Dennis Hotels Pty Ltd v Victoria.91 In that case, Fullagar J argued that the idea of an excise duty as a tax upon a good was descriptive of a special relationship between a good and the person who is liable to pay the tax on that good. To that end, Fullagar J explained that:

the necessary relation is to be found in the manufacture or production of goods — that what characterises a duty of excise is that the taxpayer is taxed by reason of, and by reference to, his production or manufacture of goods. The relation is treated as implicit in the term itself.92

Thus, the debate over whether it is possible to state with certainty and clarity what is meant by the idea of excise duties as taxes solely on the production or manufacture of goods largely ends – only to be replaced by the question of how the High Court may enter into such an inquiry by assessing the substance, rather than the form, of State legislation. The answer to that question is in the judgment of Walsh J in Western Australia v Chamberlain Industries Pty Ltd.93 His Honour stated:

[W]hen it has been said that the character of a duty depends upon the operation and effect rather than upon the form of the Act by which it is imposed, I think that what has been meant is that an examination must be made of the provisions of the Act to determine its legal effect, according to the proper construction of its operative provisions, whatever their form may be and whatever label may be attached by the Act to the duty which is imposed by it.94

All that the High Court needs to do is to look beyond the words of a statute and, instead, analyse the effect of those words and so decide whether the State tax that is being imposed on the taxpayer is by reason of, or by reference to, the taxpayer’s production or manufacture of a good. This relationship may be direct or indirect. If a relationship does not arise, then the State tax is valid and does not contravene section 90. If, however, a relationship does arise, then the State tax is an excise duty and is invalid for contravention of section 90. The consistency of this narrow interpretation of section 90 with the federal purpose of the section only adds to its appeal. It gives the Commonwealth the power to

88 See Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599 (Mason J); Dixon, see above n 24, 233. 89 Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 473 (Dawson J); Peterswald v Bartley (1904) 1 CLR 497, 511 (Griffith CJ). 90 See Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 617-9 (Gibbs CJ); Logan Downs Pty. Ltd v Queensland (1977) 137 CLR 59, 65 (Gibbs CJ); Western Australia v Chamberlain Industries Pty Ltd 1971) 121 CLR 1, 23 (Kitto J); Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 473 (Dawson J); Caleo, see above n 23, 312. 91 Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529. 92 Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529, 555 (Fullagar J). 93 Western Australia v Chamberlain Industries Pty Ltd (1971) 121 CLR 1. 94 Western Australia v Chamberlain Industries Pty Ltd 1971) 121 CLR 1, 37 (Walsh J).

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levy excise duties only to the extent that it is necessary in order to ensure the retention of Commonwealth control over its tariff policies and the imposition of customs duties. Thus, the narrow interpretation preserves the integrity of the customs union and protects free trade among the States. The reason is that a tax imposed on a good at any point after its production or manufacture will not impair any trade policy.95 Because goods from interstate or overseas will enter into circulation in the State in which they are to be sold, a tax on the distribution or sale of a good will apply to both local and imported goods. If the tax applies indiscriminately to both local and imported goods, then it will not impair any trade policy because both goods will be subject to the same fiscal burden.96 If a tax discriminates between a local good and an imported good, either directly or indirectly, then it is susceptible to challenge for contravention of section 92 because such a tax would, inevitably, impede the absolute freedom of interstate trade. Yet a tax that is imposed solely on the production or manufacture of a good is only capable of having an effect on those goods that are locally produced or manufactured. The inherent tendency of that tax is to discriminate.97 For that reason, the Commonwealth need only have control over taxes on the production or manufacture of goods to ensure that it retains control over its tariff policies and the imposition of customs duties. A tax on the distribution or sale of a good is unlikely to hinder free trade among the States. The narrow interpretation of section 90 also allows the High Court, if it so chooses, to incorporate another helpful criterion to determine if a State tax is an excise duty — the concept of discrimination. While the current jurisprudence rejects the proposition that a tax must discriminate between goods in order to be an excise duty,98 the idea that a tax must impose a discriminatory burden on a good of local production or manufacture was always sure of the support of justices of the High Court.99 As the article explained in the paragraph above, a tax that does not impose a discriminatory burden on a good does not affect the federal purpose of section 90. It does not impair any trade or tariff policy, and does not give rise to any obstacles to free trade. As Murphy J explains:

A tax imposed (invalidly because of s. 90) by a State on production or manufacture of goods, must be one on production or manufacture within the State (because of the combined effect of s. 92 and the territorial limitations on the competence of the State) and must discriminate against such local production or manufacture. A non- discriminatory tax on sales or distribution or consumption is neither a duty of customs

95 Ha v New South Wales (1997) 189 CLR 465, 507 (Toohey, Gaudron and Dawson JJ). 96 Parton v Milk Board (Victoria) (1949) 80 CLR 229, 264-7 (McTiernan J); Ha v New South Wales (1997) 189 CLR 465, 514 (Toohey, Gaudron and Dawson JJ); Dixon, see above n 24, 229, 247, 252; Coper, see above n 2, 31; Opeskin, see above n 29, 173; Hanks, see above n 23, 242, 262; Hanks, see above n 28, 376, 381; Hanks et al, see above n 3, 728, 755; 97 Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 603 (Dawson J); Logan Downs Pty. Ltd v Queensland (1977) 137 CLR 59, 84 (Murphy J). 98 Ha v New South Wales (1997) 189 CLR 465, 487-9 (Brennan CJ, McHugh, Gummow and Kirby JJ). 99 Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529 (Menzies J), (Fullagar J); Philip Morris Ltd. v Commissioner of Business Franchises (Vic) (1989) 167 CLR 399, 478 (Gaudron and Toohey JJ), 488-9 (McHugh J); Ha v New South Wales (1997) 189 CLR 465 (Toohey, Gaudron and Dawson JJ); Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561, 603 (Dawson J); Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599, 688 (Deane J); Parton v Milk Board (Victoria) (1949) 80 CLR 229, 264-7 (McTiernan J); The Commonwealth and Commonwealth Oil Refineries Ltd v South Australia (1926) 38 CLR 408 (Isaacs J); HC Sleigh Ltd v South Australia (1977) 136 CLR 475, 527 (Murphy J); Logan Downs Pty. Ltd v Queensland (1977) 137 CLR 59 (Murphy J).

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nor of excise…if these do not discriminate between those produced or manufactured inside and outside the State, neither s. 90 nor s. 92 is infringed.100

By limiting excise duties to taxes imposed solely on the production or manufacture of a good, and being sensitive to the concept of discrimination, the High Court stands a greater chance of being correct when it invalidates a tax as being an excise duty in contravention of section 90.

III CONCLUSION

The High Court’s broad interpretation of section 90 of the Australian Constitution and, in turn, the judicial expansion of the scope of the Commonwealth’s power to levy excise duties together with the consequent prohibition on States to levy any taxes on goods lead to legal and economic problems. From a legal perspective, the broad interpretation of section 90 ignores the federal purpose of that section. From an economic perspective, this broad interpretation of section 90 has been a partial cause of the vertical fiscal imbalance between the Commonwealth and its States. The legal and economic problems that result from the broad interpretation of section 90 can be avoided if the High Court gives the section a narrow interpretation. That narrow interpretation defines an excise duty as a tax imposed solely on the production or manufacture of a good. It is an economically sound principle and has the benefit of a legal test of substance that is capable of consistent and predictable application to legislation. It is also consistent with the popular perception of excise duties as a limited category of taxes on goods. .

100 HC Sleigh Ltd v South Australia (1977) 136 CLR 475, 527 (Murphy J).