This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Franchise Fees Windfall Tax (Collection) Bill
Date Introduced: 28 August 1997
House: House of Representatives
Commencement: The Bill is to operate with effect
from 5 August 1997, ie it will operate retrospectively.
The Franchise Fees Windfall Tax (Collection) Bill 1997
(the Windfall Tax Collection Bill) is part of a package of nine
Commonwealth bills dealing with the consequences of the High
Court's decision in Ha & Another v State of New South Wales
& Others and Walter Hammond & Associates Pty
Limited v State of New South Wales and Others (Ha and
Hammond) ( both unreported).
The package will in effect honour undertakings made by the
Treasurer on 6 August 1997 in response to a unanimous request from
the States and Territories that:
- the Commonwealth use its taxing powers to collect revenues
formerly levied under State franchise laws which the High Court had
held either to be invalid or constitutionally doubtful;
- the Commonwealth will protect the States and Territories
against any actions brought by persons seeking a refund for
payments made under the (now invalid) State franchise laws prior to
5 August 1997; and
- legislation be enacted to give effect to the above 'safety net'
measures in the Commonwealth Parliament as a matter of
The Windfall Tax Collection Bill is one of three bills (in the
package of nine) which provides for the imposition, collection and
administration of the 100% windfall tax on refund claims.
[Note: The use of multiple bills is in part necessitated by
the provisions of section 55 of the Australian Constitution.
Section 55 provides that laws imposing taxation can deal only with
the imposition of taxation and can deal only with one subject of
taxation. Hence, the same law cannot deal with both customs and
excise duties. Similarly, the same bill must not contain measures
providing for the imposition of a tax and establish machinery
necessary for it to be collected.]
The background to the proposed legislation is treated in detail
in two recent IRS publications:
- 'What is an excise duty? Ha and Hammond v NSW', Research
Note, Number 1, August 1997; and
- 'Federalism Up in Smoke? The High Court Decision on State
Tobacco Tax', Current Issues Brief, No.1, 1997-98.
The former paper provides a summary of the High Court's
decision, and the latter includes material outlining the extent of
the State and Territory Governments' dependence on franchise
In relation to the proposed measures the following points are
- The decisions in Ha and Hammond had been
anticipated by a number of commentators and now limit the capacity
of the States to devise creative schemes to avoid the clear wording
of section 90 of the Constitution.
- The decisions do not prevent the States from imposing either
genuine license fees or taxes on the provision of services (eg a
- The High Court was only asked to rule on the validity of
tobacco franchise fees, but the decision brings into serious doubt
franchise fees imposed on petroleum and liquor.
- In 1997-98 business franchise fees on tobacco, liquor and
petroleum were estimated to be worth more than $ 5 billion.
- Section 51(ii) of the Australian Constitution gives the
Commonwealth power over taxation but provides that Commonwealth
taxes may not discriminate between States or parts of States.
Hence, in replacing the various State business franchise fees
(taxes), the Commonwealth can only impose a uniform rate of tax
across the country. Given variations in the rate and structure of
franchise fee regimes formerly operating in each jurisdiction, some
of what the Commonwealth has called the 'safety net rates' levied
by the Commonwealth will be higher than some of the franchise fees
in some of the States and Territories.
- The Treasurer has undertaken that ' [a]ll revenue collected by
the Commonwealth under these arrangements will be returned to the
States and Territories (after allowing for Commonwealth
administrative costs.) The Commonwealth is not increasing its
- As also noted by the Treasurer, priority is to be given to
ensuring that petroleum users (including those who qualify for
off-road diesel fuel rebates and exemptions) are not to be
disadvantaged; and the Australian Competition and Consumer
Commission will monitor price movements of all affected commodities
to ensure that the 'safety net arrangements' operate as
- Some problems persist but, as at least one commentator has
observed, any ongoing confusion cannot be blamed on the
- A measure of disagreement between some States and some industry
groups over the new arrangements persists. Petroleum users, as
already noted, are to be protected and NSW, the last of the State
and Territory Governments to do so, agreed to repay prepaid liquor
licence fees on 21 August 1997.(5) The position regarding tobacco
remains somewhat hazy. The press reported at the end of last week
that three States (South Australia, Western Australia and Tasmania)
had boycotted a meeting of Treasury Officials and tobacco industry
representatives convened to discuss industry claims that the new
federal tax will result in a substantial overpayment of tax by
their industry. Reports indicate that the industry believes that
the 'over-generation' of taxation revenue was imposed by the
Commonwealth at the request of the States. It is further reported
that the three States opposed to the tobacco industry position may
argue that they must keep the extra revenue to maintain previous
State tax concessions on low-alcohol beer, cellar door wine sales
and off-road petrol use.(6)
- The Government has also indicated that the present measures are
temporary, with the matter to be discussed when the Prime Minister
and the Treasurer meet with Premiers and Chief Ministers at the
October Council of Australian Governments.
Clause 3 provides that the Bill is to apply
universally to Commonwealth, State and Territory Governments.
Clause 4 defines 'State' to include the Northern
Territory and the ACT.
Clause 5 provides that the legislation will be
administered by the Commonwealth Commissioner of Taxation, whilst
clause 13 provides that the Taxation Commissioner
may make arrangements with State authorities to facilitate the
operation of the proposed Act.
Clauses 6-8 establish the basis for calculating
tax liabilities under the scheme. The windfall tax will not apply
to amounts which a State collected prior to 5 August 1997 and which
would have had to be refunded to the taxpayer irrespective the High
Court's decisions in Ha and Hammond.
Clauses 9-11 provide for mechanisms to collect
the windfall tax. Interestingly, the Bill makes the States the
agents for collecting any windfall tax and imposes on them certain
conditions in relation to the manner and timing of remitting
revenues raised to the Commonwealth.
- Treasurer, Press Release, No.85, 6 August 1997.
- Laurie Oakes, 'Excise ruling: States have no reason to whinge',
The Bulletin, 19 August 1997: 34-35. This extended opinion
piece also provides useful political background on the workings and
limitations of fiscal federalism.
- Australian Financial Review, 22 August 1997: 6.
- Australian Financial Review, 27 August 1997: 9.
1 September 1997
Bills Digest Service
Information and Research Services
This Digest does not have any official legal status. Other
sources should be consulted to determine whether the Bill has been
enacted and, if so, whether the subsequent Act reflects further
IRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of
© Commonwealth of Australia 1997
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Published by the Department of the Parliamentary Library,
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Last updated: 2 September 1997
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