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Title          : Review of Western Australian State Taxes 
               : - Business Franchise Licence Fees 
Author         : Tax Policy Elective 1993 
Organisation   : School of Law, Murdoch University 
Language       : English 
Keywords       : TAXATION, WESTERN AUSTRALIA, EQUITY,  
               : EFFICIENCY, SIMPLICITY, REFORM 
Abstract       : See abstract to Preface and Introduction 
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ISSN: 1321-8247 
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elaw/comment/watax/chap5.txt 
 
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1 INTRODUCTION 
 
Business franchise licence fees are levied on wholesalers  
and retailers of tobacco, liquor and petroleum.  All  
wholesalers and retailers are required to be licensed  
before they are permitted to sell these products. 
 
Any discussion of business franchise licence fees must  
address the issue of whether they are unconstitutional by  
virtue of section 90 of the Constitution.  The High  
Court's definition of the term "excise" has become broader  
as time has passed.  This process has eroded the States'  
ability to levy taxes on commodities and has impacted on  
the effectiveness of their taxation policies.  
 
There is some indication that the High Court may be about  
to revert to its original, narrow definition of "excise".   
If so, it may be that this area of taxation will assume a  
new prominence in revenue raising by the States. 
 
This chapter will begin by examining the constitutional  
issues arising from the levying of licence fees.  This  
analysis will focus on the characteristics of an excise  
and, the means that the States have adopted in order to  
impose licence fees.  The methods that the States have  
used in order to remain within Constitutional bounds will  
be evaluated with reference to the three criteria of  
taxation policy: equity, efficiency and simplicity. 
 
This will be followed by a study of the provisions of each  
of the relevant Acts together with any recommendations for  
improvement.  Included within this discussion will be any  
relevant policy issues which arise from the imposition of  
such taxes.  An economic analysis of the taxes and a  
summary of recommendations will conclude the chapter. 
 
 
2 SECTION 90 
 
On the imposition of uniform duties the power of the  
Parliament to impose duties of customs and of excise,  
and to grant bounties on the production or export of  
goods, shall become exclusive. ... 
 
Section 90 has undergone some dramatic changes in the  
process of being interpreted by the High Court.  This  
outline seeks to highlight some of the more significant  
characteristics that the High Court have held to be  
indicative of an excise.  To do this, the salient points  
of each decision will be enunciated and examined. 
 
In order to properly examine the effect those decisions  
have had on this tax policy, the three criteria of equity,  
efficiency and simplicity will be utilised to evaluate the  
kinds of tax design permitted under those decision.  Not  
all of the effects of the different criteria will be  
changed under new formulations of the meaning of section  
90.  Their impact on equity, for example, has been  
limited.  Accordingly, the initial analysis will  
concentrate on the criteria of simplicity to show how the  
changes wrought by the High Court have varied the  
permissible policy base. 
 
2.1 The Initial Definition 
 
The original interpretation was formulated in _Peterswald v  
Bartley_.(1)  In this case the High Court handed down a  
narrow interpretation of the term `duty of excise'.  This  
narrow definition appeared to allow the States a  
reasonably wide power to tax commodities. 
 
The requirements of the _Peterswald_(2) decision were as  
follows: 
 
For a tax to be found as a duty of excise it must have the  
following characteristics: 
 
1.      a tax or impost; 
2.      on goods; 
3.      referable to quantity or value; 
4.      in relation to production or manufacture;  
and 
5.      and indirect not a personal tax. 
 
An excise can be seen to be an impost levied at some point  
during the process of manufacture of goods and referable  
to their quantity or value.  On this basis, it can be seen  
that a tax on commodities that is permissible under this  
definition of section 90 is one that is either levied at  
the point of subsequent distribution or is not calculated  
with reference to the level of production. 
 
The equity analysis of this formulation is as follows.   
The tax base is narrow as it applies to a limited group of  
persons, namely those who consume the specific  
commodities.  Unless the tax is imposed on goods that are  
required by a wide section of society and there are no  
near substitutes that are not subject to the tax,  
horizontal equity will be offended.  
 
Vertical equity does not appear to be satisfied at all by  
an impost of this kind.  There is no real way of ensuring  
that those who are more able to pay bear more of the tax  
burden.  In general the less well off will pay at least  
the same proportionally as the more well off.  
 
The higher potential for consumption which comes with  
increased disposable income means that those who are  
better off may pay more in absolute terms, but they do not  
pay proportionally more.  Indeed, their higher rates of  
savings may lead them to pay proportionally less.  It may  
be that vertical equity can be satisfied by imposing  
higher rates upon luxury commodities than upon necessities  
or lower quality goods.  
 
The efficiency arguments in regard to this formulation are  
quite straightforward.  Investment choices will,  
naturally, be affected by the level of the tax imposed on  
the commodity.  The effect that this will have on the  
consumption of that commodity depends upon the marginal  
analysis and price elasticity of demand of that commodity.   
This aspect will be examined in detail with respect to  
particular goods and will not be attempted in detail in  
this part of the study. 
 
It is trite to say that imposing the cost of levying a tax  
on commodities at the point of distribution will have an  
impact upon the participation rate of the distributors.   
Only if the cost of the impost can be fully passed on to  
consumers without affecting demand, will it fail to impact  
on such participation.  If the demand curve for the  
commodity is elastic and the cost of the tax has to be  
borne by the distributor, the profits to the distributor  
will be decreased and this may discourage investment in  
this sector of the economy.  The individual effect of this  
cost on individual commodities will be examined later in  
the essay. 
 
The most important criteria for this formulation is that  
of simplicity.  By permitting the tax to be imposed at the  
point of distribution by wholesalers, collection costs are  
kept to a minimum. 
 
There are a small number of collection points and, as the  
levy can be calculated on the amount of the good delivered  
from the wholesaler, records would be easy to check for  
compliance.  An adjunct of imposing the tax at this point  
is that the levy could be based on either value or  
quantity depending upon the type of good, allowing for a  
relatively straightforward calculation of the tax.  
 
Additionally, as the tax would be factored into prices  
before the commodities reached consumers it would be  
fairly transparent to them and so its acceptance level  
would be correspondingly high.   
 
2.2 The Second Phase 
 
_Parton v Milk Board_(3) found a very differently composed  
group of justices.  Hanks in a 1987 essay, stated that the  
High Court seemed to  
 
view the purpose of section 90 to concentrate in  
the hands of the Commonwealth the power to  
implement not only tariff policies but also such  
economic and social policies as stimulation or  
dampening of consumption, deflation of the  
economy and redistribution of income.(4) 
 
In this case Dixon defined an excise as a tax upon a  
commodity at any point in the course of distribution  
before it reaches the consumer. 
 
This change to the way an excise was defined effects the  
permissible tax base.  Only in regard to its capacity to  
meet the criteria of simplicity.  In spite of Hanks' view,  
there was no real change to the efficiency position.  The  
High Court did not lay down any specific guidelines as to  
use of the definition.  The States sought to maintain  
their tax base and imposed the same taxes but used  
different methods to calculate the tax to avoid offending  
section 90.  
 
The real effect of these decisions is that taxing goods  
upon their value at some stage in their distribution is no  
longer permitted.  Such a tax would need to be imposed at  
the point of consumption which would vastly increase the  
number of collection points and the difficulty of  
collection. 
 
2.3 The Current Position 
 
_Dennis Hotels Pty Ltd v Victoria_(5) was the next significant  
step in the evolution of the definition of section 90.  In  
this case the High Court allowed the States to claw back  
some of their powers to tax goods.  A licence fee based on  
sales of goods in a period prior to that for which the  
licence ran was held not to be an excise. 
 
Simplicity implications for this tax are reasonably  
similar to the second case, but with regard to the  
simplicity criteria, the taxes made permissible by the  
decision in _Dennis Hotels_ cannot to calculated in a way  
which allows for rapid changes to the turnover of the  
business or sale of the business without offending section  
90.  As a result the calculations tend to be complex and  
unwieldy.  
 
Furthermore, as most licence fees of this kind are  
effectively collected from retailers they involve many  
more collection points than would a tax imposed at the  
point of production or wholesale sale and require complex  
calculations to ensure that all the tax is collected. 
 
The whole question of licence fees calculated on past  
sales has recently been re-argued.  _Capital Duplicators  
Pty Ltd v Australian Capital Territory_(6) may be the case  
that changes the constitutional position of State taxation  
of commodities.  The High Court may decide to move back to  
the _Peterswald_ test to restore simplicity to the  
definition of excises.  Such a move would greater free up  
the State tax base to the point of allowing a broad-based  
goods and services tax. 
 
On the other hand, a retreat from _Dennis Hotels_ could  
bring with it the downfall of the existing State licence  
fees. 
 
 
3 TOBACCO LICENCE FEES 
 
In 1992-93, the total revenue raised from tobacco licence  
fees was $129.1m.  Of that revenue, it is estimated that  
around 12 per cent was generated by sales to other States  
because of the lower tax rate in Western Australia.   
However, the Government recently announced an increase in  
tobacco licence fees to 100%, which may discourage  
purchases from other States when it becomes effective.  
 
The _Business Franchise (Tobacco) Act 1975 (WA)_ deals with  
tobacco taxes.  This Act provides for the payment of fees  
by wholesalers and retailers of tobacco. 
 
Section 6 of the Act provides for the licensing of  
tobacconists.  Section 6(1) prohibits a person from  
carrying on tobacco wholesaling without a wholesale  
tobacco merchant's licence or a group tobacco licence.   
Section 6(2) prohibits the purchase of tobacco in the  
course of tobacco retailing without a retail tobacconist's  
licence or a group tobacco licence.  The penalty for  
breaching either subsection is $40 000.  Subsection (3)  
exempts a person from liability under subsection (2) where  
the purchase is made from the holder of a licence or the  
tobacco was previously purchased by another person from  
the holder of a licence.  Tobacco taxes are thus levied  
only once before sale.  That is, either a wholesaler or  
the retailer must pay the licence fee.   
 
The fees to be paid for such licences are Stated in  
section 10 of _the Business Franchise (Tobacco) Act 1975_.   
Amendments have been made since the development of the Act  
to increase the amount of licence fees payable.(7)  For any  
licence that is in force for any period after 28 February  
1990, a fee of $20 is payable for each wholesaler, group  
member or retailer depending on the type of tobacco  
licence.(8)  In addition to this, an effective amount equal  
to 100% of the value of the tobacco sold by the applicant  
during the relevant period is payable.  This does not  
include the value of tobacco purchased from the holder of  
a tobacco licence.   
 
An exemption is found in section 10(4).  This subsection  
excludes the value of any tobacco sold for delivery and  
consumption outside the State in the determination of the  
fees payable.  This is to allow for taxes imposed by other  
States. 
 
In addition to the penalties that apply for selling  
tobacco without a licence9 there are provisions for the  
recovery of fees from unlicensed persons.  Section 12A of  
the _Business Franchise (Tobacco) Act 1975_ States that  
where a person was required to hold a licence but did not  
do so, that person is liable to pay to the Commissioner a  
fee equal to twice the fee that would have been payable if  
she/he had applied for and been issued a licence in  
accordance with the Act. 
 
The fees for tobacco licences are calculated on the basis  
of prior sales as specified in section 2(1) and the first  
Schedule to the Act.  This currently allows the licence  
fee to escape characterisation as an excise contrary to  
section 90 of the Constitution. 
 
The main aim of the licence fee is to raise revenue, but  
there is the additional aim of reducing the incidence of  
tobacco smoking.  This is attempted by increasing the cost  
of tobacco and providing a proportion of the extra funds  
for health programmes.(10)  However, the recent increases in  
the levy have been joined by a significant real reduction  
in the amount of funding that is to go to the Health  
Promotion Foundation, Healthways.  In July 1993 the  
Minister for Finance announced  
that the turnover component of the licence fee was being  
increased from fifty percent to one hundred percent.  This  
amendment to the licence fee is contained in the Business  
Franchise (Tobacco) Amendment Bill.  A complementary bill  
has been introduced, the Tobacco Control Amendment Bill,  
which limits the appropriation from the consolidated fund  
to the Health Promotion Foundation to seven per cent of  
tobacco tax receipts for that year, or $12.9m, whichever  
is the lesser.  The reduction in the rate from 10 per cent  
denies the Health Promotion Foundation an additional  
$5.9m. 
 
This taxation burden is placed on all members of the  
community who smoke.  Given that tobacco costs Australia  
$6.8 billion a year in direct and indirect health costs  
and lost production, it is argued that smokers should be  
responsible for this cost.  However, it is doubtful how  
much of the revenue raised is used to meet the cost of  
smoking to the community.  Further, it has been suggested  
that the incidence of the tax is regressive, with smokers  
occurring more frequently in lower income groups.  
 
Tobacco taxes are a fruitful revenue raising activity for  
the government because of the inelastic demand for  
tobacco.  Increasing the rate of tobacco tax can thus be  
seen to exploit the addiction of many smokers. 
 
One of the rationales for increasing the cost of tobacco  
is that it may deter children and adolescents from taking  
up smoking.  _We recommend that tobacco taxes be increased  
only to the extent that the extra revenue contributes to  
existing and additional Health programmes relating to  
smoking.  The recent increase is fundamentally a revenue  
raising exercise and can be said not to have been  
introduced to affect the consumption patterns of (young)  
people in the State._ 
 
 
4 PETROLEUM LICENCE FEES 
 
Business franchise licence fees are imposed by Part IIIA  
of the _Transport Co-ordination Act 1966_.  This part is  
titled Business Franchise (Petroleum Products) Licensing.   
The provisions for licence fees for petroleum operate  
similarly to those for tobacco.  One difference is that  
the fee for petrol is determined according to the volume  
of the petrol as opposed to tobacco and alcohol where the  
fee is determined according the value of the alcohol or  
tobacco.  This can impact on the efficiency and simplicity  
of the tax.  Further, it does not take inflation into  
account in the determination of the fees.  One rationale  
for the determination according to volume is that the  
price of petrol is constantly fluctuating.  However, if  
the licence fees for petrol were determined according to  
value and not volume this could help stabilise the petrol  
market.  _We recommend that the Petrol licence fee be  
brought into line with the determination for tobacco and  
alcohol._  
 
Section 47K of the Act requires a licence for the carrying  
on of wholesale petroleum products.  The definition  
section (S47G) excludes sales of off-road diesel.  This  
exemption favours primary producers by providing tax free  
fuel.  This exemption impacts on the simplicity of the  
tax.  It can also be argued that the exemption is  
horizontally inequitable.  Regulation 35I provides that a  
person requiring diesel for off-road use may apply to the  
Commissioner for a certificate allowing the exemption.   
Problems thus arise with regard to the policing of these  
certificates and the possible abuses that may occur as a  
result of allowing the exemption.  _We recommend that this  
exemption be removed in the interests of simplicity and  
that the increased revenue be used to reduce the licence  
fee on diesel fuel, by a similar amount.  His ensures  
revenue neutrality and makes the proposal more politically  
palatable._ 
 
The definition section also excludes aviation fuel and  
liquefied petroleum gas.  These exemptions are  
considerably costly and reduce the efficiency of the tax.   
However, to remove the exemption for aviation fuel could  
decrease the number of international flights landing in  
WA.  _We recommend that the exemptions for LPG be removed  
and that the exemption for aviation fuel remain._ 
 
 
5 LIQUOR LICENCE FEES 
 
Business franchise licence fees on the sale of liquor are  
imposed by the _Liquor Licensing Act 1988_ (WA).  Although  
this Act provides for a variety of types of licence, the  
present discussion will focus on retail, wholesalersU and  
producersU licences, which are the only licences for which  
fees may be calculated on the value of past liquor sales. 
 
Licence fees are collected by the Director of Liquor  
Licensing, and Rmay be fixed at such amount as the  
Director thinks proper and reasonable in the  
circumstancesS under s.128.  However this discretion would  
normally only be exercised in determining the fee for the  
first licence period of a new licence under s.129.   
Thereafter, the fee is calculated by reference to the  
wholesale price of all liquor sold by the licensee during  
the year preceding the licence period (s.127(2)).  The  
current licence rates are 11% of the wholesale price of  
full strength liquor, and 7% of the wholesale price of low  
alcohol liquor (s.132(4), (5)). 
 
To avoid double taxation, the licence fee is only imposed  
once in the chain of production of liquor (s.134(1)(e) and  
(g)).  The intention of the Act is that it should be paid  
at the retail level.  Thus, s.132(4) provides that the  
licence fee payable by a producer or wholesaler is  
calculated as a percentage of its sales revenue from  
liquor; but s.134(1)(g) provides that in determining this  
sales revenue, Ran amount paid or payable to the holder of  
a producerUs licence or a wholesalerUs licence for liquor  
sold to a liquor merchant shall not be taken into  
accountS.  Since the term Rliquor merchantS is defined to  
include any authorised seller of liquor in Australia, the  
effect of s.134(1)(g) is that producers and wholesalers do  
not pay any fee on liquor sold by them for resale (or, by  
virtue of s.134(1)(f), sold overseas). 
 
Unfortunately, however, s.134(1)(g) does not stop there.   
Interpreted literally, it also exempts retailers from  
paying licence fees on most of the liquor they sell.  By  
s.132(5), the licence fee payable by the holder of a  
retail licence is calculated as a percentage of the gross  
amount paid by it for liquor.  However s.134(1)(g)  
provides that amounts paid to the holder of a producerUs  
or wholesalerUs licence are not taken into account in  
determining the amount paid by a licensee for liquor.   
Accordingly, retailers are exempted from paying a fee on  
any liquor bought by them from Western Australian  
producers or wholesalers.(11) 
 
Despite the clear wording of s.134(1)(g) to this effect,  
it has been administered as if it only applied to the  
calculation of licence fees payable by producers and  
wholesalers.  If this is the effect which the provision  
was intended to have, it ought to be amended.  _We  
recommend that s.134(1)(g) be amended by preceding it with  
the words Rfor the purpose of assessing a licence fee for  
a producerUs licence or a wholesalerUs licence._ 
 
The _Liquor Licensing Act_ contains numerous provisions  
designed to combat evasion of licence fees.  Most simply,  
s.146(4) and (5) require licensees to complete returns  
which enable the reported sales between producers,  
wholesalers and retailers to be cross-checked against one  
another.  The Director is also empowered to investigate  
the quantum of fees payable by licensees (ss.148, 150) and  
suspected attempts to evade payment (s.137), as well as to  
determine licence fees which cannot otherwise be correctly  
assessed (ss.135, 136) and to reassess them at almost any  
time (s.138).  The Act imposes various penalties for non- 
compliance with the provisions relating to licence fees  
(ss.141, 142, 147, 157), and permits orders for the  
payment of money to be made not only against licensees,  
but against the directors of corporate licensees, related  
bodies corporate, and their directors (s.143). 
 
One other anti-evasion provision of the Liquor Licensing  
Act is notable for its doubtful constitutionality.   
Subsection 133(2) exists to prevent a licensee from  
expanding its operations, greatly increasing its sales,  
and then surrendering or cancelling its licence before  
becoming liable to pay the increased licence fee.  The  
subsection provides that in such a case a licensee may be  
required to pay the licence fee which would have been  
payable in the licence period after the expansion of  
operations, instead of the fee assessed in respect of the  
current licence period.  This provision is almost  
certainly unconstitutional, because it effectively causes  
the licence fee to be calculated by reference to the sales  
of the current rather than a prior licence period, thus  
falling outside the _Dennis Hotels_ exception to s.90 of the  
Constitution.  We recommend that this fee be replaced by  
one determined at the discretion of the Director of Liquor  
Licensing, as for initial licence fees under s.129. 
 
It may be uncontroversial to venture that the main purpose  
of the liquor licensing fee is to raise revenue, and this  
is discussed further in the conclusion to this chapter.   
However a subsidiary purpose of the fee is to control the  
social costs of excessive alcohol consumption, including  
road accidents, health problems and crime.(12)  This is  
confirmed by s.5 of the Liquor Licensing Act, which  
provides that one of the ActUs objects is Rto provide  
adequate controls over, and over the persons directly or  
indirectly involved in, the sale, disposal and consumption  
of liquorS. 
 
An inherent shortcoming of the liquor licence fee in  
combating such social costs lies in the inequity of  
requiring all drinkers to pay for the problems created by  
irresponsible drinkers and alcoholics.  However, the  
comparative simplicity of the liquor licence fee is a  
substantial countervailing benefit.  Even if the social  
costs imposed by individual drinkers could be cheaply  
estimated, determining fees on that basis would require as  
many collection points as drinkers.  It should also be  
noted that licence fees comprise only one of the measures  
used to control the social costs of drinking; others, such  
as the 0.05% blood alcohol limit for motorists, do not  
have an inequitable incidence. 
 
A further apparent shortcoming of the fee is that it is  
imposed on the wholesale price of liquor, whereas an  
economically optimal tax to regulate liquor consumption  
would be imposed on its alcohol content.(13)  However the  
differential rate of tax for low alcohol liquor (s.132)  
does go some way towards this economic ideal.  In  
addition, the difference in the market prices of beer,  
wine and spirits suggests a broad relationship between the  
price of liquor and its alcohol content, so that the  
former may be used as a useful proxy for the latter. 
 
 
6 BUSINESS FRANCHISE LICENCE FEES ASSESSED 
 
Before offering a final assessment of the three business  
franchise licence fees, it is necessary to investigate  
exactly where their economic incidence lies.  The answer  
is much the same for all three taxes, due to the fact that  
petroleum,(14) liquor (15) and tobacco(16) all have a low price  
elasticity of demand.  This means that the level of  
consumption of these goods is relatively insensitive to  
changes in their prices.  This in turn means that most of  
the tax, although paid by producers, will be passed on to  
consumers. 
 
To explain why, consider the example of  
a 100% tax on cigarettes.  Without the tax, the $2.70  
market price of cigarettes is determined by the  
intersection of the demand curve (D) and the supply curve  
(S).  With a 100% tax, the supply curve is pushed upwards  
(S + tax), causing the price to increase to $5.00, and the  
quantity demanded to decrease correspondingly.  Note that  
due to the steepness of the demand curve (which represents  
its inelasticity), approximately 85% of the tax has been  
borne by consumers, and only 15% by producers in the form  
of reduced sales. 
 
Whether this is a desirable outcome or not cannot be  
answered in the abstract, because it impacts differently  
on two of the main criteria for the assessment of a tax:  
equity and efficiency.  Taking equity first, any narrow- 
based sales tax (which business franchise licence fees  
effectively are) will be inequitable; both horizontally,  
since only users of the taxed goods pay the tax, and  
vertically, because the rate of tax will tend to be  
regressive with respect to income.  This inequity is  
compounded where the goods have an inelastic demand curve,  
because this throws more of the tax burden on to  
consumers. 
 
Inelasticity of demand has the opposite effect on the  
efficiency of a business franchise licence fee.  Such fees  
are by definition inefficient to some extent, by  
distorting patterns of consumption away from the goods  
that fall under the tax.  However, this distortion (known  
to economists as deadweight loss) is lessened where the  
goods taxed have an inelastic demand curve.  This is  
because a high tax can be levied on such goods without  
causing much disruption to consumption patterns.  In  
simple terms, consumers will simply wear the tax burden,  
rather than cutting down on their consumption of the taxed  
good, at least in the short term. 
 
More importantly, however, even the distortion that does  
occur may not reduce the efficiency of the level of the  
good consumed, but actually increase it.  This is because  
the prices of petroleum, liquor and tobacco which would be  
set by the free market are inefficiently low, due to the  
negative externalities or external costs that the use of  
all three goods levies on the community.  So-called  
corrective taxes on these goods can therefore turn these  
external costs back on those who cause them, thus reducing  
consumption of the goods to a more efficient level. 
 
The most obvious external costs of the use of liquor and  
tobacco are the health and safety problems caused by  
users, both to themselves and to others.  Another cost is  
the intangible injury done to society by the breach of  
community attitudes against the excessive use of legal  
drugs.(17)  Similarly, the most obvious external costs of  
petroleum use are pollution and traffic congestion.   
Another cost is the infrastructure provided by the  
government for most petroleum users.  While this is not  
what is usually thought of as an external cost, the fact  
that the consumption of petroleum can be used as an  
accurate proxy for road use allows it to be treated in  
much the same way. 
 
In summary then, it has been found that business franchise  
licence fees are by definition inequitable, and that this  
is compounded for goods with inelastic demand curves such  
as petroleum, liquor and tobacco.  The fees are less  
likely to be inefficient however, both because the  
inelasticity of demand of the taxed goods works against  
the distortion of consumption patterns, and because the  
distortion that does occur is likely only to cause  
consumers to internalise some of the external costs which  
their use of the taxed goods causes. 
 
It follows from this that the suitability of business  
franchise licence fees for the taxation of petroleum,  
liquor and tobacco depends on the purposes (apart from the  
raising of revenue) which the taxes are intended to serve.   
If they are intended to reduce the consumption of the  
taxed goods, the inelasticity of demand for the goods is a  
substantial impediment to that function.(18)  The government  
would do better to rely on methods other than taxation,  
such as its Quit and Drive Safe advertising campaigns,  
which do not have such an inequitable incidence.  If, on  
the other hand, the business franchise licence fees are  
intended simply to force users of the taxed goods to pay  
for the costs they create- a user pays philosophy- then  
that function is well served by the taxes. 
 
7 SUMMARY OF RECOMMENDATIONS 
 
We recommend that tobacco taxes be increased only to the  
extent that the extra revenue contributes to existing and  
additional Health programmes relating to smoking.  The  
recent increase is fundamentally a revenue raising  
exercise and can be said not to have been introduced to  
affect the consumption patterns of (young) people in the  
State.   
 
We recommend that the petroleum licence fee be calculated  
on the value of sales, as with tobacco and alcohol.  
 
We recommend that this exemption be removed in the  
interests of simplicity and that the increased revenue be  
used to reduce the licence fee on diesel fuel, by a  
similar amount. This ensures revenue neutrality and makes  
the proposal more politically palatable. 
 
We recommend that the exemptions of LPG from the petroleum  
licence fee be removed, and that the exemption for  
aviation fuel remain. 
 
We recommend that s.134(1)(g) of the Liquor Licensing Act  
be amended by preceding it with the words Rfor the purpose  
of assessing a licence fee for a producerUs licence or a  
wholesalerUs licenceS. 
 
We recommend that the fee imposed by s.133(2) of the  
Liquor Licensing Act be replaced by one determined at the  
discretion of the Director of Liquor Licensing, as for  
initial licence fees under s.129. 
 
Notes: 
 
1       (1904) 1 CLR 497. 
2       supra 1 at 509. Per Griffith CJ, O'Connor,  
Barton JJ. 
3       (1949) 80 CLR 229 
4       Hanks, P. Constitutional issues of  
Australian Taxation, in _Australian Taxation_,  
Krever, R., Kewley, G. (eds) 1987, Longman,  
Melbourne. 
5       (1961) 104 CLR 229. 
6       [1993] 8 Leg Rep 13 (argued 20-23 April 1993) 
7       Until November 1989, the amount payable was $20  
plus 35% of the value of tobacco sold. 
8       That is, whether the licence is a wholesale  
tobacco merchant's licence, a group tobacco licence  
or a retail tobacconist's licence. 
9       Section 6 States that the penalty for carrying  
on tobacco wholesaling or retailing without a licence  
is $40 000. 
10      Section 26 of the _Tobacco Control Act 1990_ (WA)  
details the funds of the Western Australian Health  
Promotion Foundation.  Subsection (2)(b) States that  
ten percent (or such greater percentage as the  
Minister may determine by notice published in the  
Gazette) of the total amount of fees paid under the  
_Business Franchise (Tobacco) Act 1975_ to the  
Commissioner of State Taxation and the Consolidated  
Revenue Fund shall be appropriated to the extent  
necessary for the making of such payment.   
11      Therefore the only liquor which is taken into  
account in the determination of retail licence fees  
is liquor which has been imported by the retailer  
directly from interstate.  Needless to say, this  
infringes the freedom of interstate trade guaranteed  
by s.92 of the Constitution. 
12      In one New South Wales study, as many as 62% of  
incidents investigated by police, including 73% of  
assaults, were classed as alcohol-related: Ireland,  
C. and Thommeny, J.  RThe Crime Cocktail: Licensed  
Premises, Alcohol and Street OffencesS in (1993) 12  
_Drug and Alcohol Review_ 143. 
13      Lloyd, P.  RThe Economics of Regulation of  
Alcohol Distribution and Consumption in VictoriaS in  
(1985) _Australian Economic Review_ 16, 27. 
14      Dahl, C. and Sterner, T.  Analysing Gasoline  
Demand Elasticities: A Survey in (1991) 13 _Energy  
Economics_ 203.  According to this survey of 97  
studies worldwide, the average price elasticity of  
demand for petroleum is -0.26 in the short run, and  
-0.86 in the long run.  By way of comparison, an  
elasticity of -1 would signify that changes in price  
cause demand to change proportionately in the  
opposite direction. 
15      Baltagi, B. and Goel, R.  Quasi-Experimental  
Price Elasticity of Liquor Demand in the  
United States in (1990) 72 _American Journal of  
Agricultural Economics_ 451.  According to this  
American survey of data from several decades, the  
price elasticity of demand for liquor is  
approximately -0.7.  An equivalent Australian  
estimate is -0.5 (Lloyd, P.  Op. cit. 21). 
16      Alchin, T.  Tobacco Taxation in Australia  
in (1992) 11 _Economic Papers_ 77.  According to this  
survey of a number of studies worldwide, a median  
figure for the price elasticity of demand of tobacco  
is -0.47 in the short run and -0.48 in the long run. 
17      Some economists treat this kind of cost  
separately, because it is borne by society as a whole  
from the consumption of certain demerit goods. 
18      Ironically, those whose consumption it is most  
important to reduce- alcoholics and nicotine addicts-  
are those who are least likely to do so.  Although no  
research has been done on the question, taxation  
would be expected to have most effect on the  
consumption of occasional smokers and drinkers.