Payroll tax is probably unconstitutional

One reason for Australia's chronic current account deficit is payroll tax, which inflates prices of Australian products, including exports and import replacements. This suggests that payroll tax is an excise, in which case it violates s.90 of the Constitution.

In the last relevant High Court case, namely Ha v. NSW (1997), the minority accepted a narrow definition of excises, saying that s.90 was intended only to give the Commonwealth exclusive control of tariff policy. That reasoning would make payroll tax unconstitutional because it is a State tax acting as a reverse tariff.

The majority accepted a wide definition, saying that an excise is “an inland tax on a step in production, manufacture, sale or distribution of goods”. Payroll tax meets this definition in so far as it applies to labour embodied in goods. That it also applies to the labour component of services is irrelevant because, as Justice Menzies said in support of the “wide” definition in WA v. Chamberlain Industries (1970), a State cannot escape s.90 by “throwing its net widely”.

So the contention that payroll tax is an excise could expect support from both factions of the High Court. But I'm not a lawyer.

[Letter by Gavin R. Putland, rejected by the Age, Sep.4, 2009. Posted here Apr.17, 2012. See also “Australia's payroll taxes are probably unconstitutional”.]