E LAW - MURDOCH UNIVERSITY ELECTRONIC JOURNAL OF LAW
VOLUME 1 NUMBER 4 (DECEMBER 1994)
Copyright E Law and/or authors
Review of Western Australian State Taxes 1994
Chapter 7 OTHER FORMS OF GOVERNMENT REVENUE
Introduction
Methodology
Towards a Definition of Taxation
Revenue Raised from Government Trading Enterprises
Revenue Raised from Departmental Licences, Fees and Charges
Possible Implications
Bibliography
INTRODUCTION
In this chapter we seek to examine forms of revenue raising employed by the
Western Australian Government which are not formally recognised as taxes.[1]
In particular we will focus on revenue raised from statutory bodies and
departmental fees and charges.
One criteria of a tax, outlined below, is that it is not a payment for
services rendered. We contend that revenue raised by the Government in
these areas may not correspond to the principles of user-pays fees for
services and, as such, may show qualities of a tax.[2]
This becomes particularly significant when looking at the statutory basis
from which these bodies derive their authority to collect this revenue. If
the authority to levy a tax is not specifically conferred, the raising of
such revenue would be ultra vires. Further, it is important to consider the
consequences a certain form of categorisation may have on public perception
and, subsequently, on public policy.
We will focus on the State Energy Commission of Western Australia (SECWA)
and the Water Authority of Western Australia (WAWA) in considering revenue
generated through Government Trading Enterprises. To examine the issue of
fees and charges levied by departmental bodies we will focus specifically
on professional registration fees and dog licences.[3]
Section 1 describes the nature of research undertaken and identifies the
possible limitations. In section 2 we examine the constituent elements of a
tax and formulate a legal definition. The notion that monies generated from
statutory authorities are derived from true user-pays principles is
explored in section 3. In section 4 we extend the analysis of fees for
services rendered to investigate whether certain government departmental
fees and charges are indeed merely covering the costs of the services
provided. Finally, section 5 provides a discussion of our findings.
METHODOLOGY
Owing to the nature of the topic, conventional methods of library-based
research prove insufficient. As such, a significant proportion of the data
has been obtained through oral communication with the relevant governmental
departments and statutory bodies as well as the general public.
This raises potential problems concerning the validity of the information
obtained. Most problematic are issues pertaining to accuracy, bias and
subjectivity. All of these must be borne in mind when assessing the
outcomes of this research.
TOWARDS A DEFINITION OF TAXATION
In order to determine whether other revenues fall outside the parameters of
taxation, it is necessary to identify what constitutes a tax. As stated in
the cases of Air Caledonie International v The Commonwealth[4] and Australian
Tape Manufacturers Association Ltd v The Commonwealth,[5] the elements of a
tax can be outlined as:
_ a compulsory exaction of money (or something else of value);
_ collected by a public body or some other body authorised by statute to
collect it;
_ being for public purposes - a public purpose encompassing whatever the
parliament determines to be in the public interest;
_ enforceable by law; and
_ not a payment for services rendered.
Revenues falling outside the definition of a tax
There are a number of well-recognised fees and charges which stand outside
the concept of a tax. These include: fees for a licence or privilege, or
for a service rendered; charges for the acquisition or use of property; and
fines or penalties.[6]
Fines and penalties fall outside the scope of taxation by virtue of s.
46(1) of the Western Australian Constitution Acts Amendment Act 1899.
Royalties are payments made to the Government in consideration of a right
granted and are calculated in respect of the quantity or value of things
taken or produced or the occasion upon which the right is exercised.[7] As
such, they fit within the above exclusions and may be distinguished from a
fee exacted for a licence merely to do some act which is otherwise
prohibited.[8]
Most relevant to this paper is the exclusion from the notion of a tax of
charges for services rendered. Fees charged by government departments and
statutory bodies do not constitute a form of taxation if the purpose for
which the fees are charged is to defray the cost of the services rendered.[9]
Revenues that may constitute a tax
However, fees charged by Government departments and statutory bodies for
services rendered may constitute a form of taxation if they bear no
relationship to a service rendered. That is, a fee will actually be a tax
if no service is provided or the service rendered is disproportionate to
that fee - at least to the extent that the fee exceeds the value of the
service.[10]
Thus, in assessing whether fees for services prescribed by Government
departments and statutory bodies impose taxation, cost becomes of paramount
importance.
REVENUE RAISED FROM GOVERNMENT TRADING ENTERPRISES
Both SECWA and WAWA are outside the budget sector.[11] Revenue generated from
them, however, goes into the Consolidated Fund and decisions regarding them
have an important bearing on the State s finances.[12]
The budget strategy for 1993-94 in relation the these bodies is to meet the
real needs of the community for Government services in the most cost
effective way .[13] Given that one criterion of a tax is that the charge is
not a fee for a service, it is necessary to examine how these policies and
practices affect the attainment of a true and proportional fee for services
rendered.
Our aim is to determine to what extent these bodies employ a user-pays
system, as they maintain, or whether any revenue that they raise could be
characterised as a form of taxation.[14]
Statutory levy or tax - a matter of semantics?
Both SECWA and the WAWA are required to pay a five per cent[15] statutory
levy, to the Western Australian Government, on revenue raised. In 1993
SECWA returned 64.1 million dollars[16] and WAWA returned 18.6 million
dollars[17] to the Consolidated Fund.
It is possible to regard this form of levy as an indirect tax on
consumers.[18] It is arguable, however, that through this levy the Government
is merely looking for a return on its investment. Additionally, as these
bodies do not pay the multitude of taxes applicable to private enterprise,
this may be viewed as a way for the Government to control the pricing
structures of these bodies to encourage efficiency.[19]
It was stated in the 1993-94 Budget Overview[20] that the increase in the
levy rate [from 4 per cent to 5 per cent in 1994] is possible without
giving rise to an increase in these authorities charges due to efficiency
gains achieved by the authorities in recent years .
Nevertheless, according to SECWA and WAWA, this payment can be seen as a
cost of operation for which the consumers must pay. This levy thus
contributes to the pressure on tariffs and, as such, the payment required
may well be above that necessary to provide the service. Presumably, if the
costs of operation were decreasing then so too should the charges be.
Cross subsidisation - more problems for the user-pays principle
Another problem with characterising charges for these services as truly
user-pay in character is that cross-subsidisation occurs in both agencies.
SECWA has a policy of uniform rates, however there is not a uniform cost in
providing energy to different areas of the state. SECWA actually loses
approximately 50 million dollars each year in providing services to rural
areas.[21] So, there is a distortion of the user-pays principle in that
metropolitan users are actually paying more than it costs to provide the
service to them, and country users are actually paying less. While there
are legitimate policy considerations involved,[22] we may ask whether this
could be construed as a tax on those energy users paying more? This further
undermines the premise that consumers are paying solely for what they are
using.
Similarly, the tariff structures of WAWA also allow for
cross-subsidisation. This is most evident between the metropolitan
commercial sector and other sectors, with the commercial sector providing
the subsidy.[23]
Further to the notion of cross-subsidisation, both SECWA and WAWA fulfil a
range of Community Service Obligations .[24] These are financially unviable
services and activities and are undertaken on specific direction from the
government, in response to legislation, or to the Authority s understanding
of current government policy.[25] These obligations do not generate revenue
sufficient to cover the associated costs. Rather, they are implemented to
satisfy the broader economic, environmental and social needs of the
community. Losses associated with these subsidies must be absorbed by other
consumers, further eroding the notion of charges purely based on services
rendered.
Determination of rates - a wealth tax?
Unlike SECWA, which charges a uniform rate regardless of the disparity in
providing services to different areas, WAWA charges rates for water,
sewerage and drainage based on property value. The Valuer-General values
each property and rates are charged accordingly. This is indicative of a
wealth tax as it has no relation to the amount of water actually consumed.
WAWA is currently moving away from these valuation-based charges, to those
determined by the volume of water consumed. This is considered to be more
consistent with a user-pays system.[26]
REVENUE RAISED FROM DEPARTMENTAL LICENCES, FEES AND CHARGES
An example of incongruities with regard to services rendered - the Dog Act
1976 (WA)
Under the Dog Act 1976 (WA) all dog owners must register their dogs.[27] The
registration fee payable to the relevant local council[28] is to form part of
its ordinary revenue in order to cover the expenses of administering the
Act.[29] Our investigations, however, suggest that the moneys collected are
in fact significantly disproportionate to the services rendered.[30] If this
is the case, then the dog registration scheme is not user-pays.
The cost of registering a sterilised dog is five dollars, whereas the
registration of an unsterilised dog costs 20 dollars.[31] This represents a
300 per cent increase for the same service .[32] The City of Perth claims
that it does not effectively cost more to administer the registration of an
unsterilised dog than a sterilised one, so why the difference in cost?
Perhaps it is a case of the scheme operating on a cost-recovery basis, with
owners of unsterilised dogs subsidising the cost of registering sterilised
pets. This is consistent with the City of Perth s claim that the
disproportionality of fees payable is in keeping with State Government
policy to encourage the sterilisation of dogs.
Likewise, statutory concessions highlight cross-subsidisation. Dog owners
of a specific class or in specific circumstances are offered a discounted
registration fee for their dogs.[33] Pensioners, for instance, are given a 50
per cent reduction on prescribed registration fees. Does this suggest that
the cost of administratively handling the registration of a pensioner s dog
is only half that of a non-pensioner s dog?
Further, the registration of a dog which is bona fide used in the droving
or tending of stock will attract a 75 per cent cut in cost.[34] Owners of
guide dogs for the blind, or dogs belonging to the Crown are exempted from
actually paying the registration fee, although registration itself is still
required.[35] So, who bears the additional cost? It appears that it is
primarily the owners of unsterilised dogs who do not fall into any of the
concessional categories.
The fact that dog owners, according to their status and/or the status of
their dogs, pay different amounts to register their pet reinforces the
notion of cross-subsidisation and disproportionality between what is paid
and what is received. This is not a fee for service in the strict sense.
Further discrepancies uncovered
The Occupational Health, Safety & Welfare Act 1984[36] provides for the
charging of licence fees. A Certificate of Competency, at a cost of 25
dollars, is required by persons who, in the course of their employment,
operate cranes, hoists, and other dangerous industrial machinery.
The policy underpinning the licensing scheme is to regulate the operators
of industrial machinery in the interests of public safety.[37]
What does the 25 dollar fee give the licensee? According to the Department
of Occupational Heath, Safety & Welfare, it simply entitles the certificate
holder to work in his/her area. As is the case of dog registration, there
are administrative costs associated with issuing the certificate, but the
Department is unable to provide a breakdown of the costs of such
processing.[38]
The sum of 25 dollars is arguably proportionate to the cost involved in
issuing Certificates of Competency, but what about other fees which are
significantly more expensive, yet provide a similar service in return? A
Boiler Maintenance licence will cost a contractor 250 dollars (plus an
initial 50 dollar application fee) for the privilege of being registered to
practise as a boilermaker .[39]
Departmental officials will openly admit that this is a pure revenue
raiser. Whilst it may be an effective way of regulating the industry as it
ensures that only those with the requisite skills and capabilities are
practising in this field, the question still remains, is the contractor
receiving something from the State Government which is proportionate to the
250 dollars that he/she is parting with? In a tangible sense, the licensee
simply receives a piece of paper (though the applicant is also provided
with the direct administration services associated with issuing it).
An Asbestos Removalist s licence incurs perhaps the most questionable fee
that we have discovered, at a cost of 2,500 dollars to the applicant.
What these licence fees are giving licensees is simply the right to
practise their trade without prosecution. They do not entail the
acquisition of a property right. The boilermakers/asbestos
removalists/crane operators possess the skill to practice, but if they want
to do so legally, and indeed if they wish to be employed, they must be
licensed, and thus incur whatever licence fee is deemed appropriate by the
Department of Occupational Health, Safety & Welfare.
According to the Western Australian Treasury there are moves toward reform,
across the board, to establish licensing and registration schemes which
operate on the basis of pure cost-recovery rather than the present ad hoc
determination of charges. Licence fees charged by State Government
departments are reviewed annually, however no report as to whether those
fees are proportionate to the service rendered is available.
POSSIBLE IMPLICATIONS
It is apparent from the above analysis that in certain circumstances
members of the public may be paying fees disproportionate to the services
that they are receiving. If so, in a strict legal sense, this may represent
a form of taxation. Section 46(1) of the Western Australian Constitution
Acts Amendment Act 1899 states that ... a Bill shall not be taken to
appropriate revenues or moneys, or to impose taxation, by reason only of
its containing provisions ... for the demand of payment or appropriation of
fees for licences or fees for registration or other services under the
Bill.
This section does not provide for the exaction of money without the
provision of a service. This is within the exclusive realm of section 46(7)
which provides: Bills imposing taxation shall deal only with the imposition
of taxation . In light of this, exactions of money, to the extent that they
are disproportionate to the services rendered, may be perceived as
unconstitutional and, consequently, illegal.[40]
There are also possible implications concerning the determination of
Commonwealth grants to the States. These grants are based on the States
ability to generate revenue. The premise that departmental fees and charges
are proportionate to services rendered excludes these being considered as a
source of revenue for the States. The larger fee components, however, are
already taken into consideration.[41]
The labelling of money exacted from the public as fees and charges rather
than taxes, creates the perception in the minds of the public that they are
receiving something in return for these payments. This could be seen as
politically advantageous due to the general negative attitude of the public
towards taxation. It enables the Government to obtain revenue with possibly
less resentment.
On the other hand, this characterisation gives rise to implications for the
collection of this revenue by the Government bodies themselves. Decisions
pertaining to the amount of the fees charged appear to be made in an
arbitrary way, on a departmental basis. There is no standard formula which
each department must follow in order to determine how much to charge for
services rendered. Perhaps there needs to be an across the board
standardisation of criteria to be used in calculating the amounts charged.
This would be in line with the current government movement towards
managerialism.
BIBLIOGRAPHY
BUDGET 1993-94 Economic and Financial Overview, prepared by the Treasury of
Western Australia. [Essential in outlining policy considerations of hte
State Governemnt for the 1993-94 financial year.]
MCCARREY, L. Agenda for Reform. Government Publications, 1993. [Provided
intersting suggestions for reforming the public sector.]
STATE ENERGY COMMISSION OF WESTERN AUSTRALIA. Annual Report 1993. SECWA,
Perth. [A good overview of SECWA's policies and financial performacne for
1993.]
WESTERN AUSTRLAIN BUDGET, Estimate of Revenue for Year ending 30 June 1994.
[A useful statistical breakdown of estimated State Government revenue and
expendiure.]
WATER AUTHORITY OF WESTERN AUSTRALIA. Annual Report 1993. WAWA, Perth. [A
sound overview of WAWA's policies and finanical peroramcne for 1993.]
Notes:
[1] See the Western Australian Budget, Estimate of Revenue for Year ending 30
June 1994.
[2] See section 2.
[3] It is acknowledged that these provide only a limited representation of
fees charged by Government departments, however, they are particularly
illustrative.
[4] (1988) 165 CLR 462.
[5] [1993] HCA 10; (1993) 176 CLR 480.
[6] Ibid. at 507.
[7] Ibid. at 497.
[8] Harper v Minister for Sea Fisheries [1989] HCA 47; [1989] 168 CLR 314, at 335.
[9] Harper v Victoria [1966] HCA 26; (1966) 114 CLR 361 at 377 per McTiernan J; at 382 per
Owen J. See also General Practioners Society v The Commonwealth (1980) 145
CLR 532 at 561-2 per Gibbs J.
[10] See Patron Milk Board (Vic) (1949) 80 CLR 299 and Air Caledonie, supra
n. 4.
[11] That is, revenue raised by these authorities is not outlined in the
state budget.
[12] Budget 1993-94, Economic and Financial Overview, prepared by the
Treasury of Western Australia, p. 1.
[13] Ibid p. 3.
[14] It must be acknowledged, however, that the tariff structures on which
charges are based are extremely complicated and intricate and as such a
more detailed examination would be preferred but is outside the scope of
this chapter.
[15] This has been increased from four per cent in 1993.
[16] State Energy Commission of Western Australia. Annual Report 1993. SECWA,
Perth, p. 35.
[17] Water Authority of Western Australia. Annual Report 1993. WAWA, Perth,
p. 58.
[18] If this is the case, questions of constitutionality arise as it could be
construed as an excise. This is a problematic area which is outside the
scope of this chapter. See Capital Duplicators Pty Ltd v Australian Capital
Territory [1992] HCA 51; (1992) 109 ALR 1.
[19] According to SECWA, this relates to efficiency within these bodies but
also efficiency in the sense of promoting conservation of water and energy
by controlling the pricing structures. On this point is important to note
that the McCarrey Report, Agenda for Reform, Government Publications, 1993
recommended the privatisation of SECWA and the WAWA in the next five years.
Also, in the meantime that there should be a pricing tribunal to look at
tariffs and charges by Government Trading Enterprises with the aim of
removing considerations of cost from the political arena.
[20] Supra n. 1, p. 41.
[21] Oral communication, SECWA.
[22] Section 27(10)(a)(iii) of the State Energy Commission Act 1979 (WA)
states that the Commission is to have regard to the special needs for
energy services of persons who reside or carry on business outside the
cities and townships.
[23] A proposal was, however, submitted to the government to move closer to a
user-pays system based on the volume of water consumed. It was submitted
that this would lead to significant cost reductions over time for the
commercial sector and reduce the substantial cross-subsidy that currently
exists. This was accepted by government. See the WAWA, Annual Report, supra
n. 17, p. 4.
[24] In 1993, with regard to SECWA, these were in excess of 80 million
dollars. The new Coalition Government, however, has pledged to
progressively relieve SECWA of the requirement to fund community service
obligations. See the SECWA annual report, supra n. 16, p. 10.
[25] Examples of Community Service Obligations for both SECWA and the WAWA
are pensioner, dependant children and seniors card rebates. The WAWA also
offers concessions to owners of non-rated properties and employs an
apprentice training scheme at a level above the needs of the Authority. See
the WAWA annual report supra n. 17, p. 37 for further examples.
[26] These initiatives, however, are based on gradual reform of existing
tariffs and as such this discrepancy of fees will be problematic for at
least several years. (Oral communication, WAWA).
[27] s. 7 (1).
[28] s. 9.
[29] s. 10 (3).
[30] According to the City of Perth, these services involve the issuing of a
dog tag and pamphlets indicating dog exercise areas.
[31] Current fees charged by the City of Perth.
[32] viz, the administrative costs associated with having a dog registered.
[33] s. 15 (3), these are generally based on public policy considerations.
[34] s. 15 (5).
[35] s. 15 (4).
[36] Specifically, the 1988 Regulations.
[37] There are certain eligibility requirements to gaining such Certificates
of Competency.
[38] According to one Department official: It s not even an issue - we don t
determine the cost of processing them.
[39] According to Department officials.
[40] See Marsh v Shire of Serpentine-Jarrahdale [1966] HCA 77; (1966) 120 CLR 572.
[41] Oral communication, Treasury Department of Western Australia.
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