LWB242 Constitutional Law

1. LWB242 Constitutional Law • Lecture 7: Grants to States Photo by Percita Dittmar (Treasury) http://www.flickr.com/photos/dittmars/437596941/

2. Grants to States 96. During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.

3. Introduction • While the opening words suggest a transitional operation, the concluding words suggest a broad meaning. • A broad, literal reading has prevailed. • As a consequence of this interpretation, s 96 has contributed to financial dominance of Commonwealth and allows influence over State activities.

4. Interpretation of s 96 • Victoria v Commonwealth (the Federal Aid Roadscase) • Commonwealth legislation authorised the execution of a road aid agreement between the Commonwealth and the States under which money was made available to the States for road construction and reconstruction. The agreement provided the types of roads that could be built and provided that future payments were dependent on the Commonwealth being satisfied that the roads were properly maintained by the States. • Held: • “The Court is of opinion that the Federal Aid Roads Act No. 46 of 1926is a valid enactment. It is plainly warranted by the provisions of sec. 96 of the Constitution, and not affected by those of sec. 99 or any other provisions of the Constitution, so that exposition is unnecessary. The action is dismissed.”

5. Interpretation of s 96 • South Australia v Commonwealth (First Uniform Taxcase) • Section 4 of the State Grants Income Reimbursement Act 1942was challenged. It provided: • "In every financial year during which this Act is in operation in respect of which the Treasurer is satisfied that a State has not imposed a tax upon incomes, there shall be payable by way of financial assistance to that State the amount set forth in the Schedule to this Act against the name of that State, less an amount equal to any arrears of tax collected by or on behalf of that State during that financial year." • Held, in respect of the law granting money back to the States, that s 96 was a power to give “assistance” and not a power to pass coercive laws. Latham CJ at 417: • “The Commonwealth my properly induce a State to exercise its powers (eg, the power to make roads: see Victoria v Commonwealth (1926) 38 CLR 399) by offering a grant of money. So also the Commonwealth my properly induce a State by the same means to abstain from exercising its powers.”

6. Interpretation of s 96 • Victoria v The Commonwealth (Second Uniform Tax case) • The States challenged the Uniform Tax Scheme on the grounds that, by effectively removing from the States the power to levy income tax, this discriminated against the States and threatened their capacity to function as independent governing entities. (An intergovernmental immunity argument.) • Held, as long as the terms and conditions of assistance provided by the Commonwealth under s 96 are voluntary, the Commonwealth enjoys a plenary power to grant money to the States which can be used in a way which circumvents the restrictions which might operate in respect of its other heads of power.

7. Interpretation of s 96 • Victoria v The Commonwealth (Second Uniform Tax case) • Dixon CJ at 606: • “This means that the power … is well exercised although (1) the State is bound to apply the money specifically to an object that has been defined, (2) the object is outside the powers of the Commonwealth, (3) the payments are left to the discretion of the Commonwealth Minister, (4) the money is provided as the Commonwealth's contribution to an object for which the State is also to contribute funds. Road-making no doubt may have been conceived as a function of the State so that to provide money for its performance must amount to financial assistance to the State. But only in this way was there "assistance".” • Webb J at 642-3: • “Section 96 gives power to make a grant of financial assistance to a State on terms and conditions; but naturally the terms and conditions must be consistent with the nature of a grant, that is to say, they must not be such as would make the grant the subject of a binding agreement and not leave it the voluntary arrangement that s. 96 contemplates.”

8. Scope of s 96 • The limits on s 96 are few and readily avoided by careful drafting. • The Commonwealth can in essence impose any terms and conditions on grants and extend its influence in areas beyond s 51. • For example, Commonwealth policy directions in health, education and the environment.

9. Activity Discussion Forum

10. Activity Online quiz