Papal Bull from the Institute of Public Affairs

Today the Institute of Public Affairs released a “Short Form Opinion” from Bryan Pape as to the constitutional invalidity of the Clean Energy Act 2011.

Pape’s first proposition is that “by imposing a tax, called a charge for the issuing of the carbon units, and dealing with other matters concerning its general administration, the Act contravenes [section 55] of the Constitution.”

This is wrong for two reasons. 

First, the Clean Energy Act 2011 which provides for the administration of the so-called “carbon tax” does not in fact impose a tax at all.  The imposition of the tax, in accordance with a long-standing parliamentary drafting convention, is to be found in separate Acts f Parliament: the Clean Energy (Charges-Customs) Act 2011 and the Clean Energy (Charges-Excise) Act 2011. 

Secondly, even if the “carbon tax” had been included in the Clean Energy Act 2011, this still would not infringe section 55 of the Constitution.  That an Act may “deal only with the imposition of taxation” does not mean, despite the drafting convention, that the Act cannot also provide the machinery for assessing and collecting the tax.  This is the effect of the joint majority judgment in Permanent Trustee Australia Ltd v Commissioner of State Revenue (2004) 220 CLR 388, which endorsed the views of Higgins J in Osborne v Commonwealth (1911) 12 CLR 321 at 373 and Starke J in Federal Commissioner of Taxation v Munro (1926) 38 CLR 153 in which theirs Honours said that it was not unlawful to include in a taxing Act provisions incidental and auxiliary to the assessment and collection of the tax, including provisions for administration, returns, assessments, reviews of assessment etc.

Pape’s second proposition is that it is not a law with respect to “trading corporations”, noting that “saying so doesn’t make it so”.  The latter proposition is perhaps correct.  But that doesn’t mean that a law regulating the activities of a trading corporation by imposing charges for engaging in certain conduct is not, in fact, a law with respect to trading corporations. 

Pape’s third proposition is that it is not a law with respect to external affairs because it is “not a relevant or appropriate response to the Kyoto Protocol”, which is due to expire within 6 months of the commencement of the Carbon Tax, and in any event is unnecessary because the banning of broad acre land clearing in Queensland in 2006 will “more than likely” allow Australia to meet its Kyoto commitments.  This assumes of course that the Kyoto Protocol is the only relevant international instrument. It ignores the United Nations Framework Convention on Climate Change which continues to bind Australia.  It ignores the Durban Platform for Enhanced Action which binds Australia beyond 2012.  It also makes what can only be described as a huge assumption that, apart from things that are physically external to Australia, binding commitments by way of treaty obligation is the entire universe of things that may properly be described as “external affairs”.

Assuming the second and third propositions are correct, it does not have to be a law with respect to trading corporations, or with respect to external affairs, if it is in fact a law with respect to taxation.  Pape’s rather curious argument as to why it is not a law with respect to taxation is to say that the Act “imposes penalties by way of taxation…upon persons who surrender insufficient carbon credits [emphasis added]”. However, he then asserts (with no given basis) that little or no revenue will be raised from this measure” and “as such” the law which purports to impose penalties by way of taxation but will in practice not do so is not a law with respect to taxation.  Comprende? Nope, me neither.

Finally, Pape’s fourth proposition is that in the case of State-owned power stations the Act contravenes section 114 of the Constitution which prohibits the imposition of tax on property of the State, the argument being that the pollution emitted by these power stations is owned by the State. There are numerous hurdles to the property aspect of this argument.  But more fundamentally, the two Acts that actually impose the tax expressly provide that they do not apply to the extent that they impose a tax on property of a State (see, for example, section 10 of the Clean Energy (Charge-Excise) Act 2011).

So, at present it is difficult to take seriously the IPA's contention that the Clean Energy Act 2011 is constitutionally invalid.  With the High Court, however, who knows?