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 High Court of Australia 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. 320 University of Queensland Law Journal 2010 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 Samuel Griffith Society, <http://www.samuelgriffith.org.au/papers/html/volume5/v5chap6.htm> 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 Vol 29(2) Excise Duty System as Guarantee of Free Trade in Internal Market 321 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 v Bartley (‘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.