Bills Digest No. 23   1997-98 Franchise Fees Windfall Tax (Collection) Bill 1997

Numerical Index | Alphabetical Index

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 Bill.


Passage History

Franchise Fees Windfall Tax (Collection) Bill 1997

Date Introduced: 28 August 1997
House: House of Representatives
Portfolio: Treasury
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 urgency.(1)

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 fees.

In relation to the proposed measures the following points are worth highlighting:

  • 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 'bed tax').
  • 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 revenue.'(2)
  • 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 intended.(3)
  • Some problems persist but, as at least one commentator has observed, any ongoing confusion cannot be blamed on the Commonwealth.(4)
  • 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.

Main Provisions

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.


  1. Treasurer, Press Release, No.85, 6 August 1997.
  2. ibid.
  3. passim.
  4. 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.
  5. Australian Financial Review, 22 August 1997: 6.
  6. Australian Financial Review, 27 August 1997: 9.

Contact Officer and Copyright Details

Bob Bennett
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 amendments.

IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1997

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1997.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 2 September 1997

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