Commonwealth Law and State Government: The Evolution of Intergovernmental Immunities

Early Australian Federalism and the Doctrine of Intergovernmental Immunities (1904-1920)

The foundational period of Australian federalism was characterized by a specific interpretation of the relationship between the Commonwealth and state governments. Between 1904 and 1920, the High Court of Australia consistently applied the doctrine of intergovernmental immunities.

The Doctrine of Intergovernmental Immunities

This doctrine, also known by several synonyms—including "Reserved State Powers," "States' Rights," or the "Immunity of Instrumentalities Doctrine"—posited that both the Commonwealth and the state jurisdictions were immune from the laws of the other. Essentially, one level of government could not legislate in a way that controlled or interfered with the workings of the other.

Key Pre-1920 Cases

• D’Emden v Pedder (1904) and Deakin v Webb (1904): These cases, occurring in the High Court's first year of operation, established that states could not tax national entities or Commonwealth employees, and vice versa. It was during this period that the High Court famously stated that neither the Commonwealth nor the states could legislate to control the other.
• Contextual Identity: During this era, the states maintained strong colonial identities, functioning almost like separate countries. The High Court was still acclimating to the concept of a centralized federal government.

The Shift of 1920: The Engineers Case

The most significant turning point in the history of Australian federalism is the Engineers Case (1920). This case is widely credited with sweeping away the earlier doctrines of intergovernmental immunities and states' rights.

Industrial and Constitutional Aspects

• Industrial Aspect: The case concerned whether unionized workers could bring claims for improved wages and conditions in a federal industrial tribunal. This offered the advantage of "industry-wide bargaining" across state lines, allowing union wins in large firms to flow to non-unionized workers in smaller businesses, thereby boosting wages and increasing trade union density.
• Constitutional Aspect: The case centered on Section $51(35)$ of the Constitution (the labor power). The Conciliation and Arbitration Act 1904 provided for the prevention and settlement of industrial disputes extending beyond the limits of any one state. To attract federal jurisdiction, unions would serve "logs of claims" (similar to statements of claim) to employers in multiple states (e.g., New South Wales, Victoria, and Western Australia).

Facts and Legal Arguments

• Parties: The union served $843$ employers, three of whom were Western Australian state government employers.
• The Issue: Could the Commonwealth Industrial Tribunal make decisions or laws that bound a state government?
• Legal Representation: The union hired a young barrister, Sir Robert Menzies (the future founder of the Liberal Party and Australia’s longest-serving Prime Minister). Menzies argued that the implied immunity of instrumentalities doctrine had been wrongly decided.

The Judgment and Reasoning

• Lead Judgment: Written by Justice Isaacs. He was joined by Justice Higgins; both were "stalwart Labour judges" who favored big government and social democracy for its redistributive effects (e.g., maintaining the 1907 "Harvester Decision" living wage).
• Responsible Government vs. Madisonian Doctrine: Isaacs found that Australia, unlike the United States, operates under a system of "responsible government." This radically distinguished Australia from the US Madisonian doctrine, which preserved libertarianism at the state level (a doctrine linked historically to issues like slavery and lax gun laws in the US).
• "Washminster": The court essentially favored the "minster" (Westminster) aspects of the constitution over the "wash" (Washington) aspects.
• Outcome: The High Court legitimized industry-wide bargaining across state lines and bound state governments to Commonwealth law, centralizing federal power. This centralization later enabled the federal government to levy higher taxes on the wealthy to fund the effort in World War II.

The Chifley Government and Post-War Reconstruction

Following World War II, the social-democratic Labour government of Ben Chifley sought to build a welfare state. Chifley, a former train driver from Bathurst, aimed to steer Australia clear of the perils of inflation and depression.

The Chifley Social Objectives

• Freedom from want.
• Freedom from fear of unemployment, sickness, and old age.

Constitutional Reforms and Infrastructure

• 1947 Referendum: Following a High Court block in the first Pharmaceutical Benefits Case (1946), a referendum narrowly passed to insert Section $51(23A)$ regarding social services.
• Projects: Implementation of the Snowy Hydro scheme and development of Australian manufacturing (e.g., the establishment of Holden with state funding).
• Economic Strategy: Funding these efforts through high taxes on the wealthy and securing federal control over the supply of money and credit by overseeing banks.

The Melbourne Corporation Case (1947)

This case involved the Chifley government's attempt to control banking through the Banking Act 1947. Section $48$ of the Act required banks to obtain federal treasurer consent before conducting business for a state or state authority.

Background: The Corruption of Private Banks

Chifley was influenced by his experience as a Royal Commissioner on an inquiry into banks in the early 1930s. He believed private banks were corrupt, noting that during the Great Depression, they raised interest rates and foreclosed on mortgages even when they knew people could not pay. Chifley advocated for public banks, like the Commonwealth Bank (which remained public until the 1990s), to provide cheap capital and ensure government oversight of national coffers.

The High Court Decision

• The Parties: The Melbourne Corporation (a local government authority in Victoria) wanted to bank with the National Bank of Australasia. The Treasurer (on Chifley’s orders) refused, directing them to the Commonwealth Bank.
• The Ruling: A conservative majority (Dixon, Rich, Starke, Williams) struck down Section $48$. While they characterized the law under the banking power (Section $51(13)$), they found it violated federalist principles.
• Revival of States' Rights: The court did not overturn the Engineers case but revived the doctrine of intergovernmental immunities to run alongside it. This created a dual-doctrine system that maximized the High Court’s discretion.

The Doctrine of Discrimination and Limitations on Commonwealth Power

The Melbourne Corporation case established two limits on Commonwealth laws that attempt to bind the states:

1. Direct Discrimination: Singling out states for differential or disadvantageous treatment compared to individuals or corporations.
2. Indirect Discrimination (Impairment/Curtailment): Laws of general application that fundamentally prevent or impede the states from carrying out essential government functions.

Rational Discrimination

The court created an exception called "rational discrimination." If the Commonwealth legislative power, by its context or subject matter, appears to intend to authorize the restriction or control of a state, the discriminatory law may be valid. This is often viewed as a puzzling and bizarre aspect of the doctrine.

Evolution of the Melbourne Corporation Doctrine through Case Law

The Payroll Tax Case (1971)

• Issue: Victoria challenged a $2.5 \%$ federal payroll tax on all employers, arguing it impaired state functions (indirect discrimination).
• Outcome: The High Court found the tax valid. Because the tax had existed for $30$ years without preventing the state from functioning, there was no evidence of impairment.

Queensland Electricity Commission v Commonwealth (1985)

• Context: Sir Joh Bjelke-Petersen (the "Hillbilly Dictator") banned strikes by electrical workers. The federal Hawke government amended the Conciliation and Arbitration Act to allow the federal tribunal to resolve the dispute specifically between the Queensland government and the union.
• Outcome: The High Court (Gibbs, Mason, Wilson, and Dawson) found the amendments invalid. Justice Mason noted that the law singled out Queensland for a special disability.
• Expansion: Mason clarified that the doctrine protects state legislatures, executive governments, and statutory agencies controlled by the state.

The Australian Education Union (AEU) Case (Early 1990s)

• Context: The neoliberal Victorian government of Jeff Kennett abolished the state’s industrial relations framework and sought to sack teachers and nurses wholesale. Those workers appealed to the Federal Industrial Relations Commission.
• Outcome: The High Court gave a mixed response. It used "rational discrimination" to uphold Section $1111A$ (which allowed federal intervention when no state system existed). However, it ruled that the Commonwealth could NOT interfere with the employment of particular groups of public servants regarding:
  • Number of staff.
  • Duration of employment and redundancy.
  • Higher-level government roles (department heads, ministerial advisors, judges).
  • The Commonwealth could make awards regarding general wages and conditions.

Austin v Commonwealth (2003) and the New Unitary Test

• Issue: Federal tax on the superannuation of state judges.
• Significant Shift: Justices Gaudron, Gummow, and Hayne formulated a new "unitary test," replacing the two-pronged (direct/indirect) distinction with a single inquiry.
• The Austin Test: "Is there a sufficiently significant impairment of the exercise by the State of its freedom to select the manner and method for discharge of its constitutional functions?"
• Outcome: The tax was struck down. Justice Kirby dissented, arguing that if judges are immune from federal superannuation taxes, police and other public servants should be too.

Work Choices Case (2006)

States argued that the Howard government's Work Choices legislation interfered with state capacity by stripping state IR commissions of jurisdiction. The High Court (5-2 majority) found that IR commissions are not so vital that their loss affects the capacity of the state to function.

Clarke v Commissioner of Taxation (2009)

• Issue: Federal tax on the superannuation of state politicians.
• Result: Predictive of Austin, the court struck down the tax using the unitary test.
• French’s Indicia: Chief Justice French provided factors that alert the court to Melbourne Corporation discrimination:
  1. Singling out a state.
  2. Imposing a special burden or disability.
  3. The effect of the law on the state’s capacity to exercise constitutional powers.
  4. The scale of the functions affected.
  5. The subject matter and whether the head of power authorizes discrimination.

Questions & Discussion

Participant Question: (No specific questions recorded in the transcript; however, the lecturer summarized the key majority judges of the original Melbourne Corporation case.)

Response Summary:

• Chief Justice Sir John Latham: Described as an "arch-conservative" and former leader of the Australian National Party.
• Sir Owen Dixon: Regarded as Australia's greatest judge, characterized as a "very serious character" and exceptionally tall (around seven feet).