Possible Legal Challenge Over CAA/FAC Charges

There are a number of constitutional issues which must be considered in any discussion about aeronautical charges. However, a constitutional court challenge is likely to focus on two key issues. They are: Whether an aeronautical charge can be regarded as a tax; and the issue of charging for what is a ‘right’. Before examining those constitutional issues it is worth briefly looking at the existing legislation under which aircraft operators pay fees.

Legislative Background

Aircraft operators pay various charges imposed under several acts of Parliament.

Under Section 66 of the Civil Aviation Act, the CAA may fix a charge for services, facilities or the performance of administrative functions. Section 67 of the Act requires that the amount or rate of a charge ‘shall be reasonably related to the expenses incurred or to be incurred by the Authority in relation to the matters to which the charge relates and shall not be such as to amount to taxation’.

Under the Federal Airports CorporationAct (section 56) the FAC can charge for an aircraft’s use of a federal airport and for services orfacilities providedby the FAC, including charges for landing (based on an aircraft’s maximum takeoff weight) or parking of aircraft, embarkation or disembarkation of aircraft passengers and the handling of cargo carried on an aircraft occurring at an FAC airport. Section 56(10) contains a provision which is like section 67 of the Civil Aviation Act. The FAC’s aeronautical charges also include a General Aviation Infrastructure Tariff.

The Air Navigation (Charges)Act in Section 5 provides that charges are payable by an aircraft for its use of services that are maintained, operated, or provided by the Commonwealth or for Commonwealth provided financial assistance for the maintenance or operation of those services. Detailed regulations outline the types of charges imposed, including landing fees based on an aircraft’s maximum takeoff weight. The CAA recovers these charges on behalf of the Department of Transport and Communication.

Local aerodromes often impose charges, many of which are movement based. Commonwealth landing charges also apply at locally owned aerodromes which are part of the Aerodrome Local Ownership Plan. Aircraft operators also incur charges for various licences and applications, and smaller avgas-fuelled aircraft pay an excise on avgas.

Imposition of Tax

With that background we now turn to the constitutional issues, particularly the imposition of tax.

Fee for service exception

The Commonwealth has a taxation power under section 5l(ii) of the Constitution. The working definition of a tax is a compulsory levy by a public authority for public purposes’. Section 53 of the Constitution provides that a proposed law shall not be taken to impose taxation because the law contains provisions appropriating fees for licences or fees for services.

The question of a fee for services was discussed in Air Caledonie International v Commonwealth2. The High Court

defined a fee for services, if it is to escape the definition of a tax, as a fee exacted for particular identified services provided to or rendered individually to, or at the request of or direction of, the particular person required to make the payment.

However, a fee for services may be a tax if the person paying the charge has no choice about whether he acquires the services and the amount of the tax has no discernible relationship with the value of what is acquired. The word ‘value’ and the reference to ‘what is acquired’ imply that a court will look at the service’s value as perceived by the recipient, rather than looking at the Government’s cost of providing the service. The idea that a fee must relate to the service’s cost is not new. What is novel is that the service must be of value to the recipient rather than reflecting the Government’s cost of providing the service.

The new test suggests that a tax is imposed by a fee for a service which is accepted only because of legislative requirements, and is of minimal value to the person who pays the tax. Government bodies such as the CAA and FAC could, if challenged, previously reference the cost of supporting the service. It appears that the Government may now have to demonstrate the actual service’s value to the recipient.

Recovery of costs in providing services

The question to be asked here is: May the cost of supporting the service include charges that exceed those necessary to cover only the service’s direct expenses?In other words, what costs of CAA and FAC operations may be recovered by charging aircraft operators. Like any business, the CAA and FAC have structures and other operational areas beyond what aircraft operators may encounter or utilise. How much is targeted to be recovered from aircraft operators through charges requires further debate and clarification.

‘Expenses’ means the amount spent in doing something. CAA and FAC management and administration costs relating to the provision of airport facilities and services rather than other functions of the CAA and FAC will constitute expenses and would be properly seen as an element of costs passed along to aircraft operators through charges.

If an expense item represents a provision for wear and tear and maintenance of capital facilities a court may regard this as a legitimate charge component. However, if an expense item represents an allowance for capital facility replacement through obsolescence or a penalty in the sense that the entire capital costs will be recouped long before the facility’s functional life ceases, a court may hesitate in viewing this as an expense to be incurred in providing the particular service to which the charge relates. Both the CAAAct and the FAC Actbar the inclusion of a future development component in charges. Therefore, allowances for future construction representing expansion and not merely present facility replacement would not be considered expenses relating to the provision of facilities. The revenue set aside would not relate to any benefit enjoyed by those who are liable to pay charges in the current period and may potentially amount to taxation.

The legislation provides that both the CAA and the FAC are expected to earn a reasonable return on their assets. Raising charges to provide a return on assets beyond a depreciation allowance would seem to also be unrecoverable by charges. An interest allowance could be included in charges under either the CAA Act or the FAC Act for the Commonwealth’s loans to either body or for loans from other sources where these latter loans are used to finance capital works used in providing relevant facilities.

This expenses discussion raises a further question: Should revenue from non aeronautical activities as rentsand concessions cross subsidise aeronautical charges to reduce the amount paid by aircraft operators? Expenses of aeronautical activities should exclude costs associated with revenue earning, non aeronautical activities. However, revenue from non aeronautical activities could reduce the expenses of providing aeronautical related facilities. The FAC has determined that revenue from non aeronautical activities may be applied to reduce levels of aeronautical modified charges on an overall basis. However, the CAA has been forced by legislation by the Democrats in the Senate to take the position, because of section 67 of the CAA Act, that it cannot legally cross subsidise between different types of service. The FAC’s present application could be at the cost of its overall revenue objectives, for example decreasing, or being unable to provide, a dividend to the Commonwealth. The CAA may want to reassess its position on cross subsidisation to see whether charges could be further reduced Differential charges

In 1991, the FAC adopted a policy which effectively excludes certain classes of operations from certain airports at certain times. Sydney’s Kingsford-Smith Airport is the first airport affected by the policy during the weekday peak periods. Lack of capacity is cited as the primary reason for this demand management policy. As this policy includes a fixed charge per aircraft per landing or departure during indicated periods, its impact has been greater on the smaller operators.

The FAC controls the use of its facilities by regulating the flow of particular traffic and by discriminating between groups of airports and categories of aircraft. Some critics have noted that the FAC may be levying aeronautical charges to primarily dissuade intrastate aircraft operators from using airports at particular times. This is presumably to encourage them to concentrate their operations around regional airport hubs, and to consolidate smaller passenger groups in larger aircraft to minimise the cost per passenger of landing in Sydney. This policy would need to comply with the two limitations in section 5 6(10), i. e. relating the charge to expenses incurred and avoiding the imposition of taxation. On the one hand, if the FAC was unable to relate the surcharge to additional expenses it incurs, it may be seen to be imposing a tax. If, on the other hand, the FAC could demonstrate the additional airport facility’s costs associated with peak periods, it is unlikely the surcharge would be seen as a tax.

Aircraft operators and the Government must reach an agreementas to what is the value of a government service when that service is unavailable elsewhere, and necessary for a person to carry on their trade. For example, to a regional operator, the ability to land at Sydney Airport, and thus offer same day services to rural centres, is vital to its scheduling operations. But should that operator pay a higher landing fee during peak periods even though the services it receives are the same throughout the day. The value to the regional and commuter operator to have access to Sydney Airport is high, but at what cost to that operator? The value to trunk operators may be equally as high, as they rely on carriage arrangements with regional and commuter airlines to increase density on major routes. Even a particular airport has value in the mix of aircraft types that use its facilities as simultaneous operations of runways, for example, is limited if all aircraft movements are large aircraft (refer p. 21 Mar 92 AA).

The present determination of differential charges does not seem to conflict with sections 51(ii) and 99 ofthe Constitution. Section 99states that the Commonwealth shall not give preference to one state over another state with regard to trade, commerce or revenue. It is arguable that the charging provisions of the FAC Actare laws ofa revenue nature and within section 99. Moreover, any actauthorising the imposition of taxation would be a law of revenue and would likely to be caught by both sections 51(ii) and 99. If there was evidence on the face of the determinations that the rationale for the charges was not to distinguish between particular geographical areas but to deal with problems such as airport congestion, it is likely that the determination would be upheld. However, scheduling controls, rather than surcharges, that de-emphasised cluster scheduling could perhaps avoid any future legal challenges.

Charges on Rights

A second key constitutional issue is that of charging for what is a ‘right’. A charge for a privilege or a service would be a tax where the Government provides a right rather than a privilege. A charge cannot be rationalised as a fee for service where the service is in fact the provision of a right.

Distinguishing between rights and privileges presents difficulties in analysis. Common law rights are often undefined or ambiguous. One identified common law right is the right to navigate a navigable river. One must query whether the right to navigate and operate in the airways would be a corresponding right. Assuming for this article’s purposes that operation in the airways is a right, a charge made for what was previously a right would be characterised as a tax unless it could be argued that the statute abrogated the right. This is similar to the 1988 case brought by Air Caledonie against the Commonwealth where there was a right (to enter the country), restricted (if notabrogated) by the requirement to pay a five dollar fee to the Commonwealth. This case might be distinguishable because the fee related to an immigration clearance rather than to the actual right of admission to Australia. However, this distinction appears more a matter of form rather than of substance. In order to prevent the characterisation of the charge as a tax, the legislature is merely required to identify the right correctly in the legislation, and to attach the charge to it.

If an operator has no choice whether to acquire a service, and the fee was not related to the service’s value, it might still constitute a tax. W hat constitutes choice is unexplored. An operator has a choice whether to schedule services to a particular airport at a particular time to avoid surcharges. However, if certain operational scheduling is essential to maintaining an established business, the choice offered to the operator begins to look very like the practical compulsion of which the courts have been so wary in the past. The value ofthe scheduling to the individual operator (particularly regional and commuter) would then be crucial.

If the courts adopt a test of practical compulsion, how little choice may the legislation leave before a person has no choice about whether or not he acquires the services? Would the courts examine a particular level of charge by reference to the service’s value to the particular user to the exclusion of the service’s value to operators according to common sense commercial operations. It should not be assumed that a court will adopt a technical approach but rather that it would appreciate the need to have regard to the overall commercial operations at the airport and the purposes which the airport served. The courts may adopt a concept of reasonable fee removed from a landing fee based on weight. This carries echoes ofthe reasonable regulation concept which confused so much of the interpretation of interstate trade.

Where to From Here?

The levying of aeronautical charges and cost recovery of expenses requires further debate and clarification between the representative government bodies and aircraft operator associations. The Government may consider separately enacted aeronautical charging provisions, such as two part tariffs or discriminating pricing between aircraft operators, to satisfy the constitutional requirements for imposing a tax. However, aeronautical charges as they are presently levied may possibly be challenged on the basis that the government has not demonstrated the value of what is acquired by aircraft operators when aeronautical charges are paid. Finally, it is recognised that relieving congestion at primary airports is a challenge to be faced by the aviation industry. However, scheduling priority should not be achieved covertly through surcharges.

The proposed Safety Tax may face similar arguments relating to a fee for services and its proponents should view with

interest the present challenges facing the CAA and FAC. 1 Parton v Milk Board (Vic) (1949) 80 CLR 229, 259 2 (1988) 165 CLR 462

Kim Todt is an aviation law specialist with Minter Ellison, Melbourne