Constitutional basis of taxation in Australia

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The constitutional basis of taxation in Australia is predominantly found in sections 51(ii),^[1] 90,^[2] 53,^[3] 55,^[4] and 96,^[5] of the Constitution of Australia. Their interpretation by the High Court of Australia has been integral to the functioning and evolution of federalism in Australia.

The constitutional scheme as well as judicial interpretations have created a vertical fiscal imbalance, whereby the Commonwealth has the revenue-raising abilities while the States have major spending responsibilities. For example, primarily, Australian states fund schools and hospitals. The result of the limitations on state taxing power is that the Commonwealth collects the money through taxes, and distributes that money to states. The power to distribute funds to states, on conditions, is contained in section 96.^[5] As a result, the sphere of Commonwealth power has expanded through dictating policy through conditional grants. This limits the autonomy and power of the states in controlling policy.