Taxation and the Right to Property: An analysis of the case law, doctrines and jurisprudential theory justifying taxation

as a limit upon the property right.

Introduction

The modern concept of taxation, and its justification, is a matter which philosophers and, indeed, the judiciary have grappled with since antiquity. It is commonly postulated that a good tax system is one which balances the property rights of the taxpayer with the duty of the State, and indeed the taxpayer himself, to promote justice in society. The corollary of this is that a tax system which does not achieve social justice must constitute an invalid infringement of the property rights protected by Bunreacht na hireann. In this paper, I shall first look to the legal approach to this matter, with reference to jurisprudence and doctrinal arguments. I will then apply legal theory to explain the origins of the States duty. Before setting on this course however, I must first identify the provisions which set out the extent of the property right.

Property Rights in Bunreacht na hireann

The right to property is set out in the Constitution in Article 40.3 and Article 43. Article 40.3 of the Constitution provides that:

1 The State guarantees in its laws to respect, and, as far as practicable, by its laws to defend and vindicate the personal rights of the citizen.

2 The State shall, in particular, by its laws protect as best it may from unjust attack and, in the case of injustice done, vindicate the life, person, good name, and property rights of every citizen.

For its part, Article 43 provides that:

1 The State acknowledges that man, in virtue of his rational being, has the natural right, antecedent to positive law, to the private ownership of external goods. ... 2. 1 The State recognises, however, that the exercise of the rights

mentioned in the foregoing provisions of this Article ought, in civil society, to be regulated by the principles of social justice. 2 The State, accordingly, may as occasion requires delimit by law the exercise of the said rights with a view to reconciling their exercise with the exigencies of the common good.

What is clear from the foregoing is that the property right is a qualified one, subject as it is to the principles of social justice and the exigencies of the common good. Indeed, the equality provision is itself qualified, as was pointed out by Justice Barrington in the High Court case of Brennan v Attorney General1.

[1983] ILRM 449 [High Court]; [1984] ILRM 355 [Supreme Court] [hereinafter Brennan]

Plainly then, if taxation is to constitute an excusable infringement upon the property rights protected by the Constitution, its justification must fall within the somewhat nebulous confines of the principles of social justice and the exigencies of the common good. As will be illustrated, it is necessary to take account of both case law and theory in order to understand the nature and extent of these doctrines.

The balance between Property Rights and Taxation in Irish Case Law and Doctrine

The Brennan case and the case of Madigan v Attorney General2 are two leading cases which illustrate the interaction between taxation and property rights. In Brennan, a number of Wexford farmers sought to challenge the rating system based on the Griffith valuation which was conducted over 14 years from 1852. As farming patterns had changed since the valuation, it was no longer reflective of actual land value. In fact, as land values had been inflating over the period in which the valuation was taking place, it was scarcely reflective of lands valued in the early stages of the process by the time it had been completed.

Before ruling that this valuation system was inconsistent with the Constitution, Barrington J noted, obiter, that so far as revenue and fiscal statutes are concerned I would agree that the Courts should be extremely slow to interfere3. He ruled however, that the the whole system [was] shot through with

2 3

[1986] ILRM 136 [hereinafter Madigan] Brennan [High Court] at 478

unnecessary anomalies and inconsistencies4 and as such was an unjust infringement upon the property rights of the farmers. The rationale for this was most cogently illustrated by Chief Justice OHiggins in the Supreme Court when he stated:

In the assessment of a tax such as a country rate reasonable uniformity of valuation appears essential to justice. If such reasonable uniformity is lacking the inevitable result will be that some ratepayer is required to pay more than his fair share ought to be. This necessarily involves an attack upon his property rights which by definition becomes unjust.5

From Brennan it can be seen that a taxation system which raises revenue in an arbitrary way will be regarded as an attack on property rights. Importantly, according to Casey6, a progressive taxation system is not per se arbitrary, nor is one which taxes certain items of property but not others7. Such is the conclusion he draws from the case of Madigan, in which a residential property tax levied on properties with a certain market value, was held not to constitute an attack on the property rights protected by the Constitution. As OHiggins CJ pointed out in this later judgment, the decision to impose such a tax must be presumed to have been taken for the purpose of contributing to the revenue required by the State and for the purpose of exacting that contribution from the better off and well-to-do who can be presumed to occupy the more valuable houses8. He later went on to state that, although the tax interferes with the
4 5

ibid. at 469 Brennan [Supreme Court] at 365 6 James Casey, Constitutional Law in Ireland, 3rd Edition (Round Hall Sweet & Maxwell, Dublin, 2000) [hereinafter Casey] 7 ibid. at 673 8 Madigan at 161

property rights of citizens, it does not constitute an unjust attack on property rights so long as the interference is in accordance with the principles of social justice and having regard to the exigencies of the common good as envisaged by Article 43.2 of the Constitution.9

What is notable in this case, for the purposes of this paper, is that the Court does not expand upon the meaning of the principles of social justice or the exigencies of the common good. Rather, it seems willing to presume that any tax exacted by the State, so long as it is not arbitrarily levied, will achieve social justice. So much is clear from the statement of Justice OHanlon in the High Court10, later approved by Justice Murphy in the case of Browne v Attorney General11, where he claims that tax laws are in a category of their own, and that very considerable latitude must be allowed to the legislature in the enormously complex task of organising and directing the financial affairs of the State12.

Plainly, in Madigan, the Courts have shown great deference to the separation of powers. As Hogan and Whyte13 illustrate, the result of this judgment is that tax laws enjoy the benefit of a very strong presumption of constitutionality14. Indeed, other than the protection afforded by Brennan, the only other avenue to challenge a tax statute is the proportionality principle, which has been accepted to a limited degree in the case of Daly v Revenue Commissioners15.

ibid. See also, Kieran Corrigan, Revenue Law, (Round Hall Sweet & Maxwell, Dublin, 2000) [hereinafter Corrigan] at para 2 39 10 [1986] ILRM 136 11 [1991] 2 IR 58 12 ibid. at 151 152 13 Gerard Hogan and Gerry Whyte, J.M. Kelly, The Irish Constitution, 4th ed (Butterworths, Dublin, 2003) [hereinafter Hogan and Whyte] 14 Hogan and Whyte at para 7.7.82 15 [1995] 3 IR 1 [hereinafter Daly]

In Daly, a withholding tax scheme which effectively imposed temporary double taxation was held to constitute a disproportionate infringement of the taxpayers property rights with reference to the objective it sought to achieve. This case is of a more limited benefit than would appear the case however, as the purpose of the withholding tax was to assist the collection of tax and to prevent avoidance. As such, the proportionality principle was not applied to the intended use of the tax but rather to the means through which it was collected.

Indeed, when Daly is viewed in this light, it is realised that the same criticism can be levelled at the rationale in Brennan. As has been previously noted16, the Court explicitly stated that it should be slow to interfere in the tax affairs of the State. Moreover, it did not adjudicate on the meaning or extent of social justice or the common good but rather claimed that a system of taxation constituted an attack on property rights only insofar as it resulted in a taxpayer paying more than his fair share as a result of arbitrariness, without ever considering the benefit to social justice or the common good of a non arbitrary tax system.

The issue thus arising from Brennan and Daly is that, while they offer some level of protection to the taxpayer, the concepts of social justice and the common good are not elucidated, nor do they form the rationale for the decisions made by the Court. Instead, the Court defers to the legislature on these counts and instead focuses on the more limited notions of arbitrariness and proportionality, not of the tax itself, but of the means through which it is collected. Sensible though this decision may be, it means, as a consequence, that the only
16

Supra note 3

justification for actually infringing upon the property rights of citizens by the imposition of a tax, namely the principles of social justice and the exigencies of the common good, are to be determined by the same body that attempts to levy that charge.

It should not be implied from this that taxation does automatically constitute an unjust attack on those property rights protected by the Constitution; indeed, as I will demonstrate, the taxation system has support in the legal theories. Moreover, insofar as the Courts engage with the manner in which taxes are collected, the doctrinal arguments in relation to arbitrariness and proportionality do offer protection to the taxpayer. The question arises then, if the Courts are right to defer to the State in relation to social justice and the common good. This question can only be answered with reference to the philosophical theories of taxation, which I will be dealing with in due course.

Finally, issues arise from the case of Orange v Revenue Commissioners17. In this case, a solicitor contested a notice of attachment on the basis that it was an attack on his right to make a livelihood and on his property rights. In rejecting this argument, the Court expressed a number of controversial opinions. Firstly, the Court suggested that it was unlikely to ever declare the attachment procedure to be unconstitutional, but may strike down an individual notice as an unconstitutional exercise of the power18. This backs up previous authorities and makes it clear, as Corrigan suggests, that in cases of rights of property the courts will be reluctant to reach a finding of unconstitutionality19. Secondly, by
17 18 19

[1995] 1 IR 517 Orange at 524 Corrigan at para 2 47

basing its decision on the prior reasonableness with which the Revenue Commissioners had treated the plaintiff, the judge, according to Hogan and Whyte, is suggesting that what might otherwise be an unjust attack on property rights can be expiated by the reasonable behaviour of the State and its agents.20 Thirdly, Justice Geoghegan explicitly stated that an attack on property rights is not unjust by reason of some theoretical argument; it can only be unjust in all the surrounding circumstances of the case.21

The second and third points above suggest that an unjust attack had been made on the taxpayer in the instant case. It was never suggested that the reasonableness of the revenue authorities or any other surrounding circumstances of the case attained any additional benefit to social justice or to the common good. Indeed, Hogan and Whyte suggest that a more robust defence of property rights would surely require that any restriction on such rights can only be justified by reference to the intrinsic merits of the restriction, having regard to social justice and the exigencies of the common good, and not by reference to the general surrounding circumstances of the case.22 One could conclude then that this case may indeed constitute an unjust attack on that taxpayer and others bound or coerced by this decision. An examination of the theory however, suggests that this may not necessarily be the case.

The balance between Property Rights and Taxation in Theory

20 21 22

Hogan and Whyte at para 7.7.84 Orange at 524 Hogan and Whyte at 524

As indicated above, the question of what constitutes the principles of social justice and the exigencies of the common good is one which can only be decided by theoretical argument. To identify these concepts then, one must look to those theories which inform the State and its citizens of their duty. In this regard, the work of John Finnis proves the most instructive as his theories give concrete meaning to such abstract notions as these.

Finnis magnus opus, Natural Law and Natural Rights23 provides a useful starting point in determining the nature of social justice and the common good. Rather than defining these principles in terms of goals that the State may achieve through a balancing of an individuals rights, Finnis instead defines them as duties belonging to the individual, which the State should help the individual to achieve. The principles of social justice and the exigencies of the common good then, for the purposes of the Constitution, are duties owed by the individual, while as the States duty is one of a facilitator. In this light, taxation can be seen as the means through which the State may legitimately help individuals to perform their duties where they will not perform these duties, or cannot effectively co-ordinate their respective efforts to perform them24.

What then is the property owners duty to social justice and the common good? The answer to this lies in the definition Finnis gives to each of these terms. The common good is defined as an effective collaboration of persons, and coordination of resources and of enterprises25. The conditions necessary to realise the common good may be divided into two very broad classes, namely
23

John Finnis, Natural Law and Natural Rights, (Clarendon Law Series, Oxford, 1980) [hereinafter Finnis] 24 Finnis at 173 25 ibid. at 165

distributive justice and commutative justice 26. Distributive justice concerns the manner in which common stock (essentially, property which does not belong to an individual but may be used for the benefit of everyone) and the incidence of communal enterprise (the co-ordinated efforts of individuals) can be utilised in order to achieve the common good. On the other hand, commutative justice concerns the requirements for individual well-being in the community, which arise in relations and dealings between individuaIs and/or groups, where the common stock and what is required for communal enterprise are not directly in question27.

The term social justice does not appear in this work, however, it is seemingly equatable with the term distributive justice. For that reason, the principles of social justice would seem to be the means through which the exigencies of the common good can be achieved. The question arising then is what the needs of distributive justice are in relation to the private ownership of goods.

Finnis gives two justifications for private ownership. Firstly, he states that the good of personal autonomy in community ... suggests that the opportunity of exercising some form of private ownership, including of means of production, is ... a requirement of justice28. Secondly, he explains that natural resources, and the capital resources and consumer durables derivable therefrom, are more productively exploited and more carefully maintained by private enterprise, management, husbandry, and housekeeping than by the officials (including all employees) of public enterprises29. As such, this regime of private ownership
26 27 28 29

ibid. at 166 ibid. Finnis at 169 ibid. at 170

10

will be a requirement of justice, provided that the increased stock of goods yielded by such a regime is ... made available by appropriate mechanisms (e.g. ... redistributive taxation ...) to all members of the community, in due measure30.

It should be remembered, that the property used which is beyond the needs of the property owners and their dependents becomes in justice, part of the common stock31. It is for this reason that a property owner owes a duty to others, and it is for this reason that the State must levy taxes in order to help the property owner to meet his duties.

In his analysis of distributive justice, Finnis gives definition to the two exceptions to the property right in Bunreacht na hireann, namely, the principles of social justice and the exigencies of the common good. It can be seen then, that the State, through the myriad of social benefits funded by taxation, does ensure that individuals live up to the duties imposed on them by distributive justice. As such, taxation, on this ground at least, is not an attack on the property rights protected by the Constitution.

Having considered distributive justice, one must also consider the notion of commutative justice as it constitutes another condition necessary for the common good. In this regard, only one observation need be made. In demonstrating the extent of commutative justice, Finnis illustrates that persons holding public authority ... owe duties of commutative justice to those
30 31

ibid. ibid. at 173

11

subject to their authority.32 By way of example he suggests that a scheme of taxation and social welfare may be distributively just while, at the same time, its lawful and regular administration is a matter of commutative justice owed to all those who have ascertainable rights, powers, immunities, or duties under it.33

In order to serve the common good then, it will not suffice that a taxation scheme achieves distributive justice if it fails to achieve commutative justice. I have already demonstrated that the Irish tax system, by its very nature, achieves distributive justice. On the other hand we see that commutative justice is served by case law and the doctrines established in Brennan and Daly. In ensuring fair treatment of taxpayers, these cases ensure that the Revenue Commissioners achieve commutative justice and, consequently, act in the best interests of the common good. As such, on the basis of Fullers theory, taxation in this jurisdiction does not generally constitute an attack on the property rights secured in Bunreacht na hireann.

There is one exception to this conclusion however. As was suggested previously, the judgment in Orange may constitute an attack on the property rights of taxpayers in a specific factual scenario. As Finnis points out, the act of adjudication by a Court is always matter for distributive justice on the basis that the submission of an issue to the judge itself creates a kind of common subject-matter, the tis inter partes, which must be allocated between parties.34 As a consequence a Court will violate distributive justice if it makes its decision

32 33 34

Finnis at 184 ibid Finnis at 179

12

by use of irrelevant criterion or by the inappropriate use of a relevant criterion. This is in addition to the commutative duty of a judge to faithfully apply the law.

In placing weight on the prior reasonableness with which the Revenue Commissioners had treated the plaintiff, the Court, as already illustrated, seemed to suggest that an unjust attack on property rights which constitutes a failure of justice generally in so far as it is an attack on the good of personal autonomy in community35 could be excused by reason of the fact that the States agents had previously acted in a reasonable fashion. This prior reasonableness, it is supposed, excuses the State for an unreasonable act later (i.e. a failure of commutative justice). As there is a failure here, of justice generally and of commutative justice, the Courts justification fails to satisfy the exigencies of the common good.

Moreover, in stating that property rights are not unjust by reason of theoretical arguments, the Court divorces itself from the theoretical justification for taxation. If the constitutionality of taxation depends on the principles of social justice and the exigencies of the common good, both concepts requiring theoretical evaluation, then any attempt to divorce the actions of the State from these theoretical precepts has the effect of undermining the theoretical basis for taxation generally.

This is not to say that the result in the case was one that could not have reasonably been reached by the Court, rather, it is suggested that a more
35

ibid. note 169

13

satisfactory justification could have been given. It would have been more acceptable, in theory, if the Courts rationale were based on an exposition of the plaintiffs failure in his duty towards the common good in retaining such profits as were attributable to the common stock. As Finnis illustrates, the private owner of a natural resource or capital good has a duty in justice to put it to productive use or, if he lacks the further resources required to do so, to dispose of it to someone willing and able to do so.36 While the Court is quite unlikely to ever go to such an extreme, it could, in reality make its justification on a rational explanation of the meaning of the principles of social justice and the exigencies of the common good. Given that these doctrines form the theoretical and Constitutional justification for taxation, it is surprising that these have not yet been elucidated in a tax case. Insofar as this remains the situation, the theoretical justification for tax will have to be implied from the decisions of the Courts.

Conclusion

In conclusion then, it has been noted that case law and doctrine has established a strong presumption of constitutionality in favour of taxation measures. As a result, it is difficult to challenge a taxation statute unless there is an example of arbitrariness in the manner in which it is levied, or disproportionality in the manner in which it is collected. However, the existence of these causes of action does not conclusively establish that taxation does or does not constitute an attack on the property rights guaranteed by Bunreacht na hireann. This can only be proven by reference to the theories which justify the existence of both
36

Finnis at 172

14

the property right and taxation measures levied upon it. On this ground, the Irish taxation system is implicitly justified. However, more could be done by the Courts to make this justification clearer.

15