Vanderstock: wider implications for constitutional interpretation
Greg Craven
Vanderstock: wider implications for constitutional interpretation (PDF 193KB)
This paper was presented as part of the Senate Lecture Series on 1 December 2023.
Introduction
There are 3 ways by which the decision of the High Court in Vanderstock may be approached.1 The first is as a technical decision on the scope of the term ‘excise’ in section 90. This undeniably is the immediate significance of the decision, which is of basic importance, given that it critically affects the revenue-raising capacity of the states.
The second is as an exercise in judicial method, in the sense of the constitutional approach adopted by the Court in Vanderstock, as opposed to its specific decision concerning section 90. As an example of judicial method, Vanderstock is striking in an Australian context.
The third, and most important approach, is to seek to understand the future implications held by the decision for the wider interpretative directions of the Constitution by the Court. These will affect not only the interpretation of section 90, but of many – if not all – of the other provisions of the Constitution. Indeed, the Vanderstock decision contains important hints as to the future interpretation of the Constitution under a Gageler Court.
This presentation focuses upon these latter 2 wider analyses of the decision, rather than the specific interpretation of the Constitution’s excise provision. Nevertheless, it is necessary to give some sufficient account of Vanderstock in its own immediate context as a decision concerning the definition of excises under the Constitution.
Vanderstock and excises under section 90
Section 90 always has been one of the fundamentally ‘federal’ provisions of the Constitution, in the sense that its interpretation will profoundly affect the federal balance through setting boundaries to the capacities of the states to impose taxation. A wide interpretation of the term ‘excise’ will narrow the already limited revenue options for the states, while a narrow interpretation will promote the maintenance of what typically is referred to as the ‘federal balance’.2
Unsurprisingly, the High Court historically has been acutely aware of this reality. As a consequence, its decisions have been somewhat precariously balanced between ‘purity’ and ‘practicality’. Purity in this sense means interpreting the term ‘excise’ entirely technically, without regard to its implications for vertical fiscal imbalance. This approach typically produces a broad concept of excise, and a consequent strengthening of Commonwealth financial power at the expense of the states.
Practicality has involved the Court recognising that an unrestricted concept of excise realistically would risk wrecking the capacity of the states’ to levy indirect taxes, and potentially critically undermine their already precarious financial security. The practical approach therefore tends to produce a narrow notion of excise, either implicitly or explicitly by reference to the need to protect the federal nature of the Australian Commonwealth.
For most of its existence, the High Court has tended towards the practicality approach. While its decisions may not specifically have said as much, they most often confined the scope of excise in the interests of federal equity. This necessarily involved much obfuscation and increasingly technical distinctions between such legal concepts as ‘taxes’, ‘licenses’ and ‘franchises’ to name but 3. Decisions were contradictory and sometimes internally illogical, but they did preserve the increasingly meagre tax raising capacity of the states.3
However, at least by the decision in Ha, the Court had come to be attracted not only to pure interpretational logic as regards section 90, but far less moved by appeals to financial or theoretical federalism. In that decision, the Court decided that any indirect tax that ultimately entered into the price of goods constituted an excise, displacing a number of options for the states in evading the clutches of section 90. Critically, however, neither Ha nor subsequent decisions went so far as to ban a state consumption tax as contravening section 90. This was despite the fact that such an exaction would indeed be an excise under the general reasoning of Ha and its successor decisions.
In other words, consumption taxes were the last fortresses of the practicality approach to section 90.
The central effect of Vanderstock is the demolition of this refuge. The majority were prepared to admit consumption taxes and kindred exactions within the concept of excise, holding specifically that a tax on the use of electrical motor vehicles on specific highways constituted an excise. It is not easy to deduce an exact ratio from the majority judgement, but it is clear enough that the concept of excise is to be interpreted broadly, and according to its ‘natural’ meaning. It at least covers a tax which bears a close relationship to a class of goods, has an effect on the market for such goods, and in particular affects demand for those goods.
On this analysis, self-evidently, a tax on the use of electric cars on specific roads had the requisite relationship with goods (that is, electric vehicles) and according to the Court would affect the market for these goods by reducing demand for them. As regards broader consumption taxes, the logic of Vanderstock is that they would be caught as excises, in that they necessarily bear a close relationship to goods, impact the market for such goods and – apparently – automatically depress demand for those goods.
One of the striking complexities of the majority judgement is that it ultimately depends on an economic analysis of relevant state taxes by judges (and lawyers) who have no obvious training in that discipline. The majority were quite unafraid of this challenge. It insists that the task of the Court merely is to assess the ‘practical’ economic effect of an impost, free of any distracting technicalities or limitations derived from federalism.
The central consideration for the Court here is what the majority perceives as the overwhelming imperative to protect the customs union of the Australian Commonwealth embedded in section 92 of the Constitution, vesting the capacity to levy customs duties in the Commonwealth. In the event that the central government were to determine that a particular class of goods were not to be subject to customs duties, this simply could be negatived by a state or states levying a duty of excise. The majority in Vanderstock elevates the customs union imperative to what amounted to a ‘super principle’ of the Constitution, easily outweighing any contrary requirement for the protection of federalism in general, and federal fiscal balance in particular.
The distinction is exemplified in the dissenting judgement of Gordon J. She castigates the majority for failing to read the Constitution in light of a fundamental principle, and specifically accused it of amending the document itself. Her view was that the majority had transformed the specific concept of duties of excise to the simplistic delineation of all state taxes on goods. There is much to be said for the technical logic of Gordon J, but for present purposes, the judgement is one of federal practicality in the face of unrestricted purism. The judgements of the remaining members of the minority may be similarly characterised.
The obvious technical question is as to what other forms of state taxation may be condemned as excises under the majority approach in Vanderstock. To take an obvious example, any taxes on petrol would seem to be vulnerable on the basis that they would have a direct relationship with petrol-driven cars, and presumably would affect demand for those vehicles. To take the decision one step further, would car license fees constitute excise on the basis that they are greater than fees attached to motor bikes and push bikes and therefore depress demand for cars? The answer potentially is in the affirmative, though one can only imagine the complex economics involved around determining substitutability of goods as affecting demand and so forth. Similar comments may be made around differential taxing of products by reference to environmental concern, for example, as applying to glass or plastic containers versus degradable containers.
Realistically, the majority approach in Vanderstock is an economic entity pregnant with numerous economically derived ‘excises’ only to be elaborated in future decisions of the Court.
Wider implications of Vanderstock for constitutional interpretation
The majority judgement in Vanderstock is best understood as a striking example of the ‘grand scheme’ school of Australian constitutional interpretation. Despite various protestations to the contrary, it privileges not only the constitutional text of the provision, nor its history, nor even the asserted ‘natural’ understanding of section 90 in an economic context. Instead, Vanderstock stands for the proposition that individual sections of the Constitution are primarily to be interpreted by reference to relevant grand themes or strands running through the document and the constitutional settlement it creates.
In Vanderstock, as already noted, the relevant grand scheme is the customs union of the Australian federation. The financial provisions of the Constitution, and notably section 90, are to be interpreted within that fundamental context. Consequently, given that the customs union comprises a sort of ‘super principle’, the concept of excise is to be interpreted broadly so as to absolutely protect the Commonwealth’s complete power over customs duties, which could be undermined by the imposition of contrary state excise.
This incidentally produced the strange result that, even though ordinary constitutional principle would demand that section 90 – as a restriction on power – should be read narrowly, it was given the broadest possible operation by the majority. Indeed, the closest analogy lies in the Court’s interpretation of section 109 of the Constitution, its inconsistency provision, where the application of the ‘covering the field test’ has cut a swathe through state laws.4 After Vanderstock, section 90 is a state-killer in the same sense as section 109.
The commitment of the majority to the grand scheme of customs union also explains the obsession of the majority with questions of economic operation. If one is utterly focused on avoiding the economic undermining of Commonwealth customs policy, one naturally is drawn to an in-depth examination of economic effect, in order to determine whether a duty comprises a forbidden excise.
The obvious difficulty is that High Court judges are not trained in economics, let alone the complex economics of markets affected by duties. This is a point powerfully made by Gordon J, but running through all the dissenting opinions. Put frankly, what would a person trained in law, and applying constitutional law, necessarily know about economics. The clear answer is very little.
Some of the High Court’s previous expeditions into economic theory have been markedly unsuccessful. When the Court comprehensively overhauled the meaning of section 92 regarding freedom of interstate trade, it propounded a test of whether or not the duty in question imposed a discriminatory burden on interstate trade.5 This test necessarily involved wading into the economic realities of a duty, with consequent complexity and results that were not compelling to lawyers and economic experts alike. Even the factual decision in Cole v Whitfield6 that the Tasmanian duty in question did not discriminate against the South Australian crayfish market in favour of the Tasmanian market was the object of private amusement within the relevant sections of the Tasmanian public service, some of whom asserted that this was exactly the intention behind the duty.
Vanderstock thus invites the Court in determining constitutional cases into a shadowy world of factual impact – in this case economics, but potentially some other discipline – where the Court is not informed and potentially both confused and even gullible. There have been previous examples where the Court has wandered in fascination into foreign realms of knowledge. It was ruefully said by some lawyers involved in the Seas and Submerged Lands litigation that once the High Court had been supplied with multiple historic maps, there was no stopping it. Maritime geography, which was an utter mystery to it, apparently was far more interesting than constitutional method.
The use of constitutional history is of some interest in Vanderstock. The majority used the Convention Debates extensively. But this was not to elucidate the concept of ‘excise’, but to deny that it had any accepted meaning to the founders of the Constitution, and thus generally at the time of Federation. This probably is true, but it is something of a paradox to see history so extensively applied by the Court, but to so little impact. It is a warning to those who see the Debates as an easy key to constitutional meaning.7
That said, the dismissal of an historic meaning to the notion of excise was crucial to the Court’s employment of the grand interpretative scheme of customs union. In the absence of any compelling textual or historic explanation of the concept of an excise, the Court was free to construe it within some much wider constitutional theme.
Perhaps the most intriguing element of Vanderstock is why the Court privileged in particular its grand explicatory theme of customs union, as opposed to some other theme or grand scheme of the Constitution. There are, after all, a number of fundamental streams running through the Australian Constitution. The most obvious of these is federalism. Not only does it dominate the Constitution textually, but the slightest historic analysis of the Convention Debates would show that it dominated the minds of the founders to the subjection of every other topic.
Why did the Court not seek to resolve the inherent ambiguity of the term ‘excise’ in section 90 in the context of the fundamental imperative of federalism, rather than the far less compelling one of customs union? It is clear that had it done so, a precisely opposite interpretation of section 90 and decision in the case at hand would have been the result. An application of federal theory would have preserved, so far as possible, the power of the states to obtain revenue, and therefore led to a limited concept of excise. This really is the principle underlying many of the earlier decisions which strained to limit the application of section 90 and narrow the concept of excise. It also enlivens the minority judgements in Vanderstock.
It is hard not to suspect that the theme of customs union was chosen precisely by the majority because it had the practical effect of enhancing the financial power of the Commonwealth over that of the states. This ultimately is a values judgement in favour of centralism like that represented in the famous Amalgamated Society of Engineers v Adelaide Steamship Co Limited (‘Engineers Case’)8, not a judgement of constitutional law. It is in this sense that Gordon J was entirely correct in saying that the majority judgement involved an amendment of the Constitution. It was an amendment adjusting the federal balance of power in favour of the Commonwealth, like so many of the Court’s most famous decisions in the past.
One final technical point may be made, which may seem merely niggly. The combined judgements in Vanderstock are extraordinarily long and complex. Indeed, taken together, they are longer than many minor academic theses in the discipline of law. In particular, the length and complexity of the majority judgement renders it difficult to enunciate a clear rationale for the decision. This may limit the future use of the decision as an effective and far-ranging precedent.
Vanderstock and future directions in constitutional interpretation
Predicting future directions of the High Court in interpreting the Constitution is a famously inexact science, on much the same scale as selecting the winner of the Melbourne Cup 3 months in advance of the race. Nevertheless, the decision in Vanderstock does enable an observer to make some modestly certain predictions.
In Vanderstock, the High Court has returned to its great historic work of undermining Australian federalism. This has been the overwhelming theme of the Courts decisions since its tone was set by the Engineers Case in 1928. The limitation of state taxation in Vanderstock sits easily with the ban in the Engineers Case against going beyond the literal words of the Constitution to the making of federal implications; the expansive interpretation of section 109 to allow the Commonwealth to sweep clear entire fields of Commonwealth legislation; and the progressive whittling down of any immunity of state governmental entities from Commonwealth action.
Consequently, the states must eye the decision in Vanderstock with considerable nervousness. Even more importantly than its severe potential effect on state finances, Vanderstock signals an entire psychological position of the Court against what are commonly called ‘states’ rights’. That psychology logically will extend to other areas of federal disputation, notably the determination of the scope of Commonwealth legislative powers contained in section 51. A court that can cheerfully displace large elements of state taxing power is unlikely to have much regard for the interests of the states in the pull and push of legislative competency.
Given the pervasively federal nature of the Australian Constitution, what ultimately lies behind the reasoning in Vanderstock is the same motivating force that drove the Court in the Engineers Case, the expansion of the Commonwealth’s exclusionary legislative power under section 109, and the extremely broad interpretation of such Commonwealth powers over corporations section 51(xx) and external affairs section 51(xxix).9 This is the practical conviction that the logical and desirable destination of the Australian federal state is towards pervasive central power and away from state competence. The potency of this theme in the historical reasoning of the Court is explicitly recognised in the minority judgements in Vanderstock.
There are 2 fundamental objections to this type of constitutional centralisation. The first is as to legitimacy.10 There can be no doubt that the Australian Constitution was framed to produce a profoundly federal result, in the sense that it police a strict division between Commonwealth and states. Under that division, the legislative powers of the states would so far as possible be preserved. To put it simply, the Australian federation was to lean towards its components, rather than its centre.
Judges like those in the majority in Vanderstock who are deeply interested in history in general and the Convention Debates in particular know this. For every mention of the importance of a future customs union, there literally are dozens demanding the protection of the states and the strong federalism they required to prosper. The High Court itself was seen as the ‘keystone’ of the federal arch, charged with protecting the position of the states, a somewhat humorous position in light of subsequent history. The strict preservation of state powers was cemented by the restrictive amendment procedure contained in section 128, which required not only a majority in a national referendum but the carriage of that referendum in a majority of states.
Crucially, this was a democratic settlement. The Constitution had been drafted overwhelmingly by delegates democratically elected to the great conventions by the colonial populations. The draft bill they produced was popularly approved not once, but twice. That bill’s constitutional successor likewise can only be amended by referendum. Even by contemporary standards, the democratic character of the Australian Constitution both in terms of formulation and amendment is remarkable, and notably exceeds those of other great federations, such as Canada and the United States. Surely, the interference by the High Court in the federal settlement achieved by the Constitution – for example, by consciously limiting the power of the states over indirect taxation – is entirely illegitimate?
There are various answers that have been made to this charge, of which 2 currently are most popular. The first is to deny the democratic pedigree of the Constitution. The argument goes that the founders were not truly representative of the Australian people; that women could not vote; that the ratification process was imperfect. The difficulty with this argument is that we are not really assessing the Constitution on the basis of absolute, but comparative democratic legitimacy. On this basis, imperfect as the Constitution’s democratic chain of title may be, it certainly beats the unauthorised amendment of the Constitution by 7 unelected judges whose appointment ultimately is in the deeply political hands of the Commonwealth executive, and whose social background hardly itself is reflective of modern Australian society.
The other argument on legitimacy is the risible one that the founders intended that the High Court progressively amend the Constitution by interpreting it in light of changed national circumstances. Various heavily redacted and unrepresentative passages from ultimately marginal founder Andrew Inglis Clark typically are cited. There are 2 immediate problems here. First, when Clark’s writings are analysed as a whole and in context, rather than picked over for encouraging sentences, it is absolutely clear that he was not a judicial progressive. Second, when the Convention Debates, as well as the connected debates around the Judiciary Act are closely examined, they reveal an absolute clarity that the founders were overwhelmingly opposed to judicial amendment of the Constitution. They were fully aware of the American experience in this regard and rejected it.
A second argument against historic constitutional validity boldly bypasses questions of legitimacy and appeals to practicality. The argument typically runs that in a complex modern world, Australia needs a system that promotes the cohesive and rapid deployment of policy. This can only be achieved by a powerful central government, not a gaggle of self-interested states. Echoes of this sentiment sound strongly through the majority judgement in Vanderstock, with its heroic defense of the customs union policed by Australia’s central Commonwealth government.
The difficulty is that there is no evidence that centralised government is any more efficient and effective than its concentrated alternative. Many exemplars among modern nation states are federal rather than unitary states, to name but 4, the United States, Canada, Germany, and Australia itself. At the most practical level there is no evidence in Australia that the policy record of our central government has been superior to that of our federal integers. After all, the Commonwealth currently wallows in policy doldrums in such areas as policy regarding refugees, immigration, healthcare and defence. It is hard to discern a thread of policy quality superior to that of the states. Perhaps most strikingly, when Australia faced an almost existential crisis in COVID-19, it was the states, not Canberra, which led the country out of danger. Consequently, for the High Court to justify the limitation of state taxing power on the basis that this embodies an advance in the Australian policy matrix is implausible.
What certainly is striking about Vanderstock in terms of future constitutional interpretation is what has been referred to as the ‘grand scheme’ approach. This is strikingly different to the 2 historically competing ideologies of interpretation. The first was the literalism of the Engineers Case, where the words of the Constitution simply were given their natural meaning, without regard to federal implications. The second was an intentionalism that in the United States would be referred to as originalism, and was derived from an historical search for the intention of the founders behind a particular constitutional provision. In many ways, most of the history of constitutional interpretation in Australia can be seen as a battle between these 2 basic approaches.
But the decision in Vanderstock is neither literalist nor originalist. It does not purport to derive any conclusive meaning from the word ‘excise’. It does accord some importance to founder’s intent, but more as something underlying the Constitution as a whole, or at least its financial settlement, than as a concept directed primarily to section 90 itself. Once again, it is clear that the Court looked to animating constitutional principle – the grand scheme of customs union – as the umbrella under which the delineation of excises would be achieved.
The obvious question is where this school of grand scheme interpretation might take the Court in the future? Significantly, this type of constitutional interpretation has been deployed before by the Court. Its most dramatic outing was when the Mason Court used what it regarded as the Constitution’s central theme, ‘representative democracy’ to found a small number of implied rights, most notably the freedom of political communication, but also by immediate implication rights around assembly, electoral franchise and so forth.11 This rights jurisprudence has survived in Australian constitutional law, but its development stalled after a brief flowering in the 1990s. Their implication was controversial both in terms of constitutional history and the plausibility of the vague concept of ‘representative democracy’ as the controlling principle of the Australian Constitution.
The attraction of the Court in Vanderstock to reasoning on the grand scale offers the tantalising vision of whether the Court might adopt the same sort of reasoning in other constitutional contexts. Most obviously, would a Gageler Court be prepared to enliven the concept of implied rights by reviving the great principle of representative democracy in the same way as it deployed the founding principle of a customs union. In recent times, the Court has shown limited enthusiasm for pursuing the sort of rights consciousness of Sir William Deane, but the wide interpretative approach adopted in Vanderstock does offer possibilities.12
One thing that is absolutely clear from the majority judgement in Vanderstock is that this is not a Court frightened of the practical outcomes of its decisions. The fact that a broad interpretation of section 90 might undermine state finances clearly has dissuaded the High Court in the past. This Court was merciless in its application of principle to state revenue. Interestingly, this tough-mindedness is very similar to the approach of the Court in an entirely different context, the application of the doctrine of the judicial separation of powers to the detention of refugees. In XYZ v Commonwealth (‘XYZ’)13, the Court again was profoundly indifferent to the practical plight of the Commonwealth in the wake of its decision, as policy collapsed and was confounded. Again, this is a Court that is content to have the dice land as they fall, which should be a warning to both Commonwealth and the states. An obvious point in light of both XYZ and Vanderstock is that the Court is likely to take a broad view in the application of underlying constitutional principle, and this necessarily will produce a strong adherence to separation of powers reasoning.
The interest of the Court in Vanderstock in economics raises some intriguing possibilities. Section 90 is not the only section of the Constitution open to economic reasoning. Section 92 is the obvious example and has been the object of experimentation in the past. But section 109 is another candidate. Thus far, the Court’s reasoning on whether a state law ‘entered a field’ of Commonwealth legislation has been relatively crude, often involving little more than a semantic analysis of the terms of the competing pieces of legislation. The economic approach of Vanderstock might be dramatic here, with the Court more closely evaluating the actual policy effects of laws, rather than merely their terms. Of course, the limitations on the economic capacities of High Court judges remain problematic.
The final ‘pointer’ in Vanderstock is the Court’s interest in history, and the Convention Debates in particular. Decisively gone are the days when use of the Debates was first prohibited, then discouraged. The Court is fully prepared to delve extensively into the Debates, and it probably is fair to say that judges are more qualified as legislative historians than they are economists. The result in Vanderstock probably will cause under-estimation of the future influence of history in constitutional interpretation, simply because the application of historical insight provided no determinative explanation of the concept of excise. But section 90 is a special case: constitutional historians have long known that the debates provided no settled explanation of that term. Importantly, other sections of the Constitution are underlain by much deeper historical insights, notably including a number of Commonwealth powers contained in section 51, such as the corporations power.
Conclusion
Vanderstock obviously is a decision of great importance in the specific context of excise. It has the capacity to significantly affect the taxing capacity of the states, but also to complicate it, as new forms of impost are devised and refined, very probably with the cooperation of the Commonwealth. Its wider importance for constitutional interpretation lies in the Court’s willingness to adopt an approach of ‘grand scheme’ reasoning. The implications of this stretch a long way beyond the interpretation of section 90 and could be applied with significant effect to the Constitution as a whole.