Academic outlines tax law shortcomings

Society will continue to rely on income tax despite fundamental shortcomings in taxation law, Victoria University of Wellington’s Professor John Prebble says.

That was Professor Prebble’s conclusion in his lecture “Income Taxation: A Structure Built on Sand”, delivered as the inaugural 2001 Parsons Lecture at Sydney University earlier this month.

The annual lecture was set up in memory of Professor Ross Parsons, who was for many years a professor in the Law Faculty at Sydney University. At the time of his retirement in 1986 he was the acknowledged doyen of tax scholars and teachers in the Commonwealth, having inherited that mantle from the late Professor Wheatcroft of the London School of Economics.

Professor Parsons died in 1999. Former colleagues, friends and students contributed to a fund to endow an annual lecture in his memory, and Sydney University is in the process of establishing the Ross Parsons Centre for Tax, Commercial, and Corporate Law.

Victoria University Pro Vice-Chancellor and Dean of Law, Professor Matthew Palmer, said it was a great honour for Professor Prebble to be asked to give the inaugural Ross Parsons lecture. “Professor Parsons was highly regarded internationally for his work on taxation, and it is a tribute to John Prebble’s standing in that area, too, that he should be asked to give the first of these annual lectures,” Professor Palmer said.

Towards the end of his career, Professor Parsons had begun work on fundamental problems of income tax law, work that might help people to answer questions like: Why does income tax law forever need reforming? Is there something that differentiates income tax law from other law? Why does income tax law need a general anti-avoidance rule (in New Zealand, the old section 99) whereas other areas of law manage without? This work culminated in Professor Parsons’s article, “Income Taxation–an Institution in Decay” (1986) 3 Australian Tax Forum 233.

An important strand of Professor Prebble’s work in recent years has explored similar themes, beginning with his inaugural address at Victoria University, “Why is Income Tax Law Incomprehensible?” [1994] British Tax Review 380. Apart from the work of Parsons and Prebble, and a celebrated article by Professor Joseph Isenbergh, “Musings on Form and Substance in Taxation” (1982) 49 The University of Chicago Law Review 859, there has been very little study of income tax law as a subject of analytical jurisprudence.

Professor Prebble’s 2001 Parsons Lecture, “Income Taxation: a Structure Built on Sand”, agrees with Professor Parsons’ central theme, that income tax law is fundamentally incoherent. However, unlike Professor Parsons, who foresaw the demise of income taxation, Professor Prebble argues that society will continue to rely on the tax in spite of its shortcomings.

Among his reasons is that practically speaking the rest of the world could not change from income tax to another tax without the United States joining in. Clause 9(4) of the Constitution of the United States in effect prohibits direct taxation in America. In 1913, the Sixteenth Amendment allowed income tax, but made no provision for any other direct tax that might replace income taxation.

Professor Prebble’s inaugural lecture on June 14, and the celebratory dinner that followed, attracted a large gathering of judges, professors and other teachers from the three Sydney universities, silks, and members of the legal and accounting professions.

The lecture was held in the Banco Courtroom of the New South Wales Supreme Court. The dinner was in the foyer of the Sydney Stock Exchange, to take advantage of the Exchange’s large video screen, used to display an electronic version of Professor Parsons’s classic treatise, Income Taxation in Australia. The book is out of print; second-hand copies are going up in price, rather than down. Sydney University has recently put the book on line at www.law.usyd.edu.au/tax/parsons.

The 2001 Parsons Lecture, “Income Taxation: a Structure Built on Sand” will be published in the Sydney University Law Review in due course. The Victoria University Law Faculty is pleased to offer advance copies in electronic form. Please write to christine.polglase@vuw.ac.nz.

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