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The Unnecessary Referendum to Legitimize ‘Pork Barrelling.’

   – Parliament’s retaliation against the High Court’s correction of its spending abuses.    


Voters on 14 September 2013 are likely to be asked to approve a change in the Constitution to allow the Commonwealth Parliament to make grants of financial assistance to Councils ‘on such terms and conditions as the Parliament thinks fit.’ The Bill to bring this about is the Constitution Alteration (Local Government) Bill 2013 and was read for the first time on 29 May 2013.

The preamble to the Bill says that it is, a Bill for an Act to alter the Constitution to recognise local government by stating that the Commonwealth can grant financial assistance to local government, including assistance for community and other services. (My emphasis). Section 13(2)(b) of the Acts Interpretation Act 1901 (Cth) now makes the preamble part of the Act. It strikes at the heart of the federation. It smacks of bringing back the notorious Whitlam Government’s ‘Australian Assistance Plan’ for Regional Councils.

Presently, the Parliament can lawfully make such grants indirectly to Councils by giving the money to States which under the terms of the grant (so called ‘tied grants’) the money is directed to be paid to Councils; (s.96 of the Constitution). The aim of the proposed amendment is to bypass the States to give the money directly.

As ‘Tip’ O’Neill, a former speaker of the United States House of Representatives said, “all politics is local.” Both the Government in proposing a Bill for a referendum to amend the Constitution and the Opposition in supporting it now embrace this contrivance. All up at a cost of $55.6 million, $44 million to hold the referendum and $11.6 million for a so called national civics education campaign of doubtful validity.

For about forty years, the Parliament has been making grants directly to Councils, the most infamous being the Roads to Recovery (‘R2R’) Programme. Signs showing that the road work was financed by the Commonwealth were displayed long after it was done from Hunter Street in the Sydney CBD to Manangatang in the Victorian Mallee.  All of this ended on 7 July 2009, when the High Court unanimously held that the mere appropriation of moneys under s. 81 did not give the Parliament authority to spend on whatever it liked. Its effect was that all such previous payments were also unlawful. Contemptuous of this ruling the Parliament and the Government have kept on throwing money at Councils.

Amendments last year to the Financial Management and Accountability Act 1997 (Cth.) and its regulations were a pathetic attempt by the Parliament to give itself the power to spend when it did not otherwise have the constitutional power to do so; s.32B.  For example, ‘to build capacity in local government and provide local and community infrastructure’; Item 421.002 of Schedule1AA of the Regulations.  ‘A stream cannot rise higher than its source.’ If these were valid amendments there would be no need for the proposed referendum.


Like Banjo Patterson’s “Mulga Bill from Eaglehawk who caught the cycling craze”, the Government in 2009 decided to yet again stimulate the economy by spending $40 million on a ‘National Bike Path Project’. Grants of $611,659 to Kwinana for 10.138km at $60,333 per km and $135,000 to Tamworth for 13.5km at $10,000 per km are good examples. The total cost to Kwinana was reported as $1.2 million ($120,000 per km) of which half was gifted by the Commonwealth. Could the six times $ per km disparity between Kwinana and Tamworth and twelve times in the comparative cost per km show that some ‘padding’ occurred?

Illustrations of ‘vote buying’ abound.  In the 2010 election campaign the Prime Minister promised to set up a fund of $225 million to pay $15 million to a selected group of 15 Councils to build houses. This was trumped by the Government’s Regional Development Australia Fund of $1,000,000,000 to give largesse to 55 Regional Development Committees across Australia. Round 4 recipients  are to be announced from 12 July 2013. No doubt as part of the election campaign. The Prime Minister’s recent stay in Rooty Hill resulted in the map being redrawn to include Greater Western Sydney as an eligible region. $175 million for ‘prizes’ is available for projects ranging from $500,000 to $15 million.  Such grants are beyond Commonwealth power. They are responsibilities of the States.

Amending the Constitution in the way in which the Parliament is proposing would be to undermine its working.  Councils are established by State laws. If tied grants were made directly to Councils, the power of the Parliament would be further increased to enable it to enter any chosen field of activity.  Effectively it would end the federation and bring about a unitary Government.

There would be conflict between the States and the Commonwealth as who was the master.  Where there is an inconsistency between a State law and a Commonwealth law, the latter prevails and to the extent of the inconsistency the former is invalid; s.109.

The cause of the present problem is that the Commonwealth raises far more money than it needs to discharge its responsibilities. As the eminent constitutional lawyer Professor Geoffrey Sawer put it so eloquently long ago, “those who tax do not have to justify the expenditure, and those who spend do not have to justify the taxation.”

Unless the Parliament exercises proper fiscal discipline and stops overreaching its powers the present federal-state fiscal fiasco will continue. The Commonwealth’s primary responsibilities are in defence, trade and external affairs and social security. Health in the main and education, including universities, are State responsibilities.

Surpluses could be substituted for deficits, if the Commonwealth focussed on only raising the taxes it needs to fulfil its constitutional functions. It should give up its use of tied grants to control activities otherwise beyond power.

Remember the saying that, ‘when it is not necessary to change, it is necessary not to change.’

Bryan Pape

30 May 2013 (985 Words)




The Superannuation (Excess Concessional Contributions Tax) Act 2007 (Cth.) and the Superannuation (Excess Non-concessional Contributions Tax) Act 2007(Cth.) which impose rates of tax of 31.5% and 46.5% respectively continues to cause concern to savers.

These taxes are imposed on delinquent savers or contributors to complying superannuation funds who for whatever reason exceed the cap on their contributions as enacted by the Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth.) and the amendments to the Income Tax (Transitional Provisions) Act 1997 (Cth.).

A case in point is where the Commissioner issues an assessment on the ground that there has been an excess concessional contribution when the taxpayer has suffered a tax loss for the financial year and finds that it answers the description of an excess non-concessional contribution.

Section 26-55(2) of the Income Tax Assessment Act 1997 (Cth.) (the Act) works to limit a taxpayers’ concessional deductions available to them with respect to the financial year.  It is contended that the section does not deny that taxpayers have made deductible concessional contributions. What the section does is to deny the concessional contributions inclusion in the tax loss to be carried forward to be deducted against the assessable income of later financial years. The extent of this limitation can be in part or in full. This is consistent with the long standing treatment given to concessional deductions under the Income Tax Assessment Act 1936 (Cth); for example under s. 80(1) and s. 79C and which by  s.1-3(2) of the Act, the ideas expressed are not to be taken to be different just because a different form of words were used.

Paragraph (aa) of sub-section (1) of s. 292-90 of the Act is apparently invoked to treat these contributions as non-concessional contributions.

It seems that the Commissioner treats concessional contributions as non-concessional contributions when they fail to answer the description of a concessional contribution and as such do not satisfy s. 292-90(1) (b) of the Act.

The reference in s. 292-90(1)(aa) and to 292-90(4)(b) of the Act[1] described as an ‘integrity measure’ in the Explanatory Memorandum, should be read as referring to the decisions of the Commissioner to disallow an amount of the kind referred to in s.290-150(2) as illustrated by paragraph 1.22 and Example 1.4 where the 10% rule was not satisfied.

Relevantly s. 292-90(4) of the Act says that:

An amount is covered under this subsection if it is any of the following:

(a)          ……………………..;

(b)          the amount of any contribution made to that plan in respect of  you in

          the year that is covered by a valid and acknowledged notice under

          section 290-170, to the extent that it is not allowable as a deduction

          for the person making the contribution;

(c)           …………….

(Emphasis added).

It is submitted that the section works by denying deductions because they do not satisfy the conditions set out in s. 290-150(2). This would seem to be consistent with the example given in para 1.22 of the explanatory memorandum. See s. 15AB (2)(e) Acts Interpretation Act 1901 (Cth) (the Interpretation Act).

In short, a contribution is denied because it doesn’t satisfy the sections listed in s. 290-150(2) and not because it carries the label of a concessional deduction. There it is disallowed not for the current financial year but against inclusion in the tax loss to be carried forward by reason of s. 26-55(2) of the Act. The limit is equal to the difference between the other or non-concessional deductions and assessable income.

In this respect it is submitted support for this interpretation is given by s. 15AA(1) of the Interpretation Act:

….. a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object. 

In CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384, Brennan CJ, Dawson, Toohey and Gummow JJ (omitting footnotes) with Gaudron J concurring said:


It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1901 (Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in Isherwood v Butler Pollnow Pty Ltd. if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.


See also Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 538 per McHugh, Gummow, Kirby and Hayne JJ at paras 69-71 and 78.

13 March 2013

[1] Inserted by the Superannuation Legislation Amendment (Simplification) Act 2007 (Cth.), (No 15 of 2007), s.3 and Sch. 3 item 18 for the 2007 and later financial years



The MRRT – to be or not to be?

Does the Minerals Resource Rent Tax (MRRT) discriminate between the States of the Commonwealth? If it does then it will be struck down as invalid by the High Court of Australia as being contrary to s. 51(ii) of the Constitution.  Relevantly this section says:

The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to:

(ii) taxation; but so as not to discriminate between States or parts of States;

This question among others was argued before the High Court in Fortescue Metals Group Limited & Ors v Commonwealth  (S 163 of 2012) from 6 March to 8 March 2013. The Court has reserved its decision.

The transcript can be viewed at:


The nub of the issue is to be found in the equation expressed in s. 10-5 of the Minerals Resource Rent Tax Act 2012(Cth.) (the Act) which states:

MRRT liability = MRRT rate (Mining profit – MRRT allowances)

Section 60-25 works out the amount of the royalty credit as follows:

         (1)  To work out the amount of the royalty credit in the MRRT year in which the royalty credit arises in relation to a liability of a miner:

                (a)  work out how much of the liability gives rise to a royalty credit under section 60‑20; and

                (b)  divide the result by the MRRT rate.

Note:   Paragraph (b) grosses‑up the royalty payment to an amount that will reduce the ultimate MRRT liability by the amount of the royalty payment.


Example:         A miner pays a State royalty of $22.5 million in an MRRT year. The royalty credit in that year is:


$22.5 million / MRRT rate = $100 million


When the royalty credit given by s. 60-25, as authorised by Item 1 of s. 10-10, is substituted for MRRT allowances then the following expanded equation is produced:


MRRT liability = MRRT rate (Mining profit  –  Royalty / MRRT rate)

Simplifying this equation produces the following:


MRRT liability = MRRT rate x Mining profit – Royalty


In short, the full amount of the royalty is treated as a rebate of the MRRT, which agrees with the note to s. 60-25. Dixon J (as he then was) in Carlton Brewery Ltd v FC of T (1947) 73 CLR 446 said at p.455: that a rebate is not a means of payment discharging a liability. It is an integer in the calculation of the liability reducing its amount or conceivably preventing it arising.

The Act provides for the calculation of a notional royalty allowance equal to 4.4 times (i.e. 100/22.5) the actual royalties incurred by the miner. The reason for this is obvious. It produces a tax benefit equal to the full amount of the royalty.  Put another way it produces the same result as if a rebate equal to the amount of the royalty had been allowed against a notional MRRT liability as in the simplified equation above.

By framing the royalty allowance in this way the Act seeks to avoid the tax being discriminatory because of different state royalties. For all other deductions allowed in arriving at the mining profit, (for example state payroll taxes), the tax benefit is 22.5% but for royalties the tax benefit has been contrived as a notional allowance of 100% i.e. 4.4 x 22.5%. It is a cosmetic calculation to conceal its true character as a rebate.

To treat the royalty allowance as not being a rebate would be to prefer form over substance. The so called royalty credit equals 100 cents in the dollar and equals the amount of the royalty.

In other words the tax discriminates between the States because of the amount referable to the different state royalties.  If it is so held then it would be invalid as being contrary to s. 51(ii) of the Constitution.

Perhaps if the Act had been framed so as to allow a credit equal to the royalties incurred as a way of discharging the MRRT liability then the difficulties thrown up by s. 51(ii) may have been avoided.



8 March 2013                                                                                 Bryan Pape