R v Barger

Judgement of the High Court of Australia

R v Barger is a 1908 High Court of Australia case where the majority held that the taxation power could not be used by the Australian Parliament to indirectly regulate the working conditions of workers. In this case, an excise tariff was imposed on manufacturers, with an exemption being available for those who paid "fair and reasonable" wages to their employees.

The Court had to consider whether the Commonwealth had power to indirectly regulate the working conditions of workers under section 51(ii) of the Australian Constitution. The Court was divided 3:2 and the division in the Court can be seen as a continuation of the debate in the constitutional conventions about the nature of the federal system and the legislative powers of the new Commonwealth.

Their Honours held that the Excise Tariff Act 1906 was invalid because it was not in substance a tax, but rather an impermissible attempt to regulate the conditions of manufacture, and that went beyond extent of the taxation power. Their Honours approached the substance of the Act by considering the position of the States, which could directly regulate the wages of employees in manufacturing, and could enforce that with a penalty for non compliance. A State could not impose an excise as this power was exclusive to the Commonwealth. The decision in this respect has been criticised as a collapse into formalism, holding that 'motive' and 'consequences' were irrelevant while the 'purpose apparent on its face' was relevant. Further a particular tax may have more than one objective. Higgins J also rejected the substance argument, holding that as the Act imposed a tax on the production or manufacture of commodities, it was an excise tax, which the Federal Parliament could impose and the State Parliaments could not. The claim the real substance of the act was the regulation of wages referred to either the motives or the legislators or to the consequences of the legislation, neither of which were matters for the Court.

Section 51(ii) of the Constitution provides that in making laws with respect to taxation, the Commonwealth cannot "discriminate between States of parts of States". This decision was affirmed on appeal by the Privy Council. which held that "The rule laid down by the Act is a general one, applicable to all the States alike, and the fact that it operates unequally in the several States arises not from anything done by the Parliament, but from the inequality of the duties imposed by the States themselves".

The primary finding of the majority was that the Excise Tariff Act was not a law with respect to taxation. Thus the question of whether it discriminated between States could only arise on the hypothesis that the primary finding was wrong and the law was "with respect to taxation".

There are two propositions within the judgment of Isaacs J. The first, later to assume orthodoxy, was that "Discrimination between localities in the widest sense means that, because one man or his property is in one locality, then, regardless of any other circumstance, he or it is to be treated differently from the man or similar property in another locality". The second proposition was more controversial, in which Isaacs J sought to distinguish parts of a State from parts of the Commonwealth, holding that section 51(i), when read in conjunction with section 99, did not require taxation to be uniform throughout the Commonwealth, instead "that the treatment that is forbidden, discrimination or preference, is in relation to the localities considered as parts of States, and not as mere Australian localities, or parts of the Commonwealth considered as a single country". This followed the line of reasoning apparent from his earlier statements in Parliament when introducing the Excise Tariff Act, that States Wages Boards and Arbitration Courts could not be recognised as setting 'fair & reasonable' wages without discriminating between the States because they depended on State lines which must be forgotten for the purpose of taxation. The Commonwealth could recognise different rates in different parts of Australia, but not as different State rates. This distinction was one that Dixon CJ described in 1958 as something he had the "greatest difficulty in grasping". Higgins J reasoned along similar lines to Isaacs J and observed that it would not be discrimination between States or parts of States if a graduated income tax were introduced when incomes were higher in one State than in another.

Section 55 of the constitution provides that "laws imposing duties of excise shall deal with duties of excise only" and that "any provision therein dealing with any other matter shall be of no effect." Consistent with their opinions that the Excise Act was in substance a tax, neither Isaacs J nor Higgins J needed to deal with the effect of dealing with any other matter. Higgins J put it succinctly that "this Act deals only with the imposition of taxation; it taxes, and it defines the persons to be exempted from the tax. This is all it does. There is no "provision therein dealing with any other matter." There is no obligation laid on anyone to do anything except to pay the tax."

The conclusion of the majority was reached in the shadow of the reserved powers doctrine, in which the grants of power to the Commonwealth in the Constitution should be read in a restrictive way so as to preserve areas that had been intentionally left as the responsibility of the States. In the course of argument, Griffith CJ stated "The express power given to the Commonwealth Parliament to deal with foreign and inter state trade and commerce implies a prohibition against interfering with interstate trade and commerce, and that must be remembered in dealing with the other powers given." The majority described the applicable rule in this case as "different, but founded upon the same principles", concluding that the power of taxation could not be exercised so as to operate as a direct interference in the internal affairs of the States.

Isaacs J strongly opposed the reserved powers doctrine, holding "There can be no derogations from the grant expressly made, except those which are expressly stated or which of necessity inhere. It is an inherent consequence of the division of powers between governmental authorities that neither authority is to hamper or impede the other in the exercise of their respective powers, but that doctrine has no relation to the extent of the powers themselves; it assumes the delimitation aliunde. It is contrary to reason to shorten the expressly granted powers by the undefined residuum". Higgins J similarly rejected the reserved powers doctrine stating "To say that the Federal Parliament cannot make a law because legislation on the subject belongs to the States is rather to invert the true position. The Commonwealth has certain powers, and as to those powers it is supreme; the State has the rest. We must find what the Commonwealth powers are before we can say what the State powers are".

The decision was made before the Engineers case in 1920 swept away the reserved State powers doctrine. The doctrine had been established and affirmed in earlier cases by the original High Court Bench (Griffith CJ, Barton and O'Connor JJ) who were the majority in this decision. The beginnings of the overturning of the doctrine were already evident in the dissenting decision of Isaacs and Higgins, who held that neither the purpose nor the effects of the Act were a valid objection for the exercise of the taxation power.