Was hardly enough room at the Bar table in No 1 courtroom at the High Court that day.
It was in 1982 or perhaps 1983. Every state, the Commonwealth and the plaintiff was represented by a QC and a junior, all in silk, stuff and horsehair. On the Bench six of the seven judges wore gowns and wigs. Justice Murphy, sensibly did not wear one. In all, there were nearly two dozen players in full theatrical costume, enough to put on a Shakespearean comedy _ Much Ado About Nothing would have been appropriate for what was about to unfold.
In measured tones, the tobacco company’s QC began his attack on what he called unconstitutional taxes on tobacco products by state governments.
At that stage state governments had been imposing taxes in various guises on alcohol for a quarter of a century and taxes on tobacco and petrol for some time.
I say “in various guises” because the Constitution (in Section 90) says only the Commonwealth can raise excise taxes. What is an excise? In lay terms, taxes on goods, as distinct from taxes on income or transactions (stamp duty).
However, since the Dennis Hotels case in 1959, the term “excise” has been lawyerised. And the states have been able to levy licence fees, turnover taxes, franchise fees and the like based upon last year’s or last month’s consumption _ a lawyer’s trick. These taxes work extremely well for items like alcohol, petrol and tobacco. And, more recently in the case of the ACT, on X-rated videos.
On any lay view, these are excises and it is unconstitutional for the states to levy them. However, the High Court has let the states get away with them because the Commonwealth pinched the states’ power to levy income tax during World War II and did not give it back after the war. The states had to get some money from somewhere.
From 1959 to about 1980 the High Court rejected many challenges, but then some judges hinted in other judgments that they were uneasy with the constitutional impurity of these taxes.
The tobacco industry took up the hints. And thus it was that all those QCs were in the High Court, thinking they were to be instrumental in an historic reshaping of Australia’s public financing.
Then, less that half an hour into the tobacco QC’s address (a blink of an eye in lawyerspeak terms), Sir Harry whispered something to his other judges and then leaned over towards the Bar table with his benign smile and said something like: “I cannot see where this argument is taking us. It has been traversed many times before and whereas the court might be uncomfortable with these taxes they have been relied upon by the states for so long now that they could not be over-turned without grave disruption.”
At that the case ended. And the costumed players left the courtroom, most without so much as a bit part.
Ten years later another challenge was brought, this time against the franchise tax on x-rated videos raised by the ACT Government — a tax similar to petrol, tobacco and alcohol taxes in the states.
It was not thrown out peremptorily like the tobacco one. Full argument was heard and tomorrow the court will bring down judgment. All the informed sources say the court will invalidate billions of dollars of state taxes, sending the public finance of Australia into turmoil.
The case has sent federal and state politicians into a flurry with suggestions that the Commonwealth would have to collect the taxes on behalf of the states, but at a uniform rate as the Constitution requires.
I suspect, however, that given the 1983 form (true, with different judges), the court will give the states some form of out, even if a limited one. None the less, the upshot will probably be that autonomy of the states will be further eroded but their structure will remain as an empty inefficient cipher of centralised Commonwealth policy. Or as Alfred Deakin so presciently put it in 1902: The Constitution left the states “”legally free, but financially bound to the chariot wheels of the Central Government”.
The result has been that neither level of government is responsible and accountable for matching its taxing to the effectiveness of its spending. If Australia is to have better public administration we need either to put financial efficacy into the legal arrangement or abandon the federal system altogether. That goes beyond what the High Court can do tomorrow.