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A. Finance.

Taxation.—Sec. 51. “The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to

“ii. Taxation, but so as not to discriminate between States or parts of States.”

The power which lies at the root of all government is thus conferred in the most unqualified terms. It is a substantive power, and not a mere incident to the accomplishment of the other purposes of the Commonwealth Government. In the second place, the terms employed extend far beyond those used in the Constitution of the United States, where Congress has power merely “to lay taxes, duties, imposts, and excises to pay the debts and provide for the common defence and general welfare of the United States”; or in the British North America Act, 1867, where the government of particular powers—the Provincial Legislature—has power to make laws with respect to “Direct Taxation within the Province in order to the raising of a revenue for Provincial purposes.” A power to make laws for the peace, order, and good government of the Commonwealth with respect to “Taxation” is prima facie more than a power to raise money by taxation, and to prescribe the matter, manner, measure, and time thereof; it is capable of embracing the whole subject of taxation, by whatever authority, throughout the Commonwealth. While the States would retain the power of regulating and imposing taxation as heretofore, their laws thereon would be subject to the paramount laws of the Commonwealth Parliament. To such an extensive construction of the power over taxation, it may, no doubt, be objected that it is a Federal Commonwealth which has


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been established; that “the power to tax is a power to destroy”; that under it the Commonwealth Parliament would have power to deprive the States of the means of carrying on their government by forbidding every conceivable mode of taxation; and that it is a cardinal doctrine of construction applied both to the Constitution of the United States and the Constitution of Canada that the extent of particular powers conveyed must be measured by the nature of the union. A notable instance of restricted construction put upon extensive words is to be found in the Slaughter-House Cases,note interpreting the Fourteenth Amendment of the Constitution of the United States, whereby no State shall make or enforce any law which shall abridge the privileges and immunities of citizens of the United States. The Supreme Court treated as irresistible the argument that a construction must be false which would involve so great a departure from the structure and spirit of American institutions as to fetter and control the States Governments by subjecting them to the control of Congress in the exercise of powers of the most ordinary and fundamental character, radically changing, in fact, the whole theory of the relation of State and Federal Governments to each other, and of both those Governments to the people. In the Slaughter-House Cases, however, the question was as to the effect of an Amendment which, had the extended meaning contended for been given to it, would have changed the relations of nearly a century by introducing Congressional and judicial control over functions which the States Legislatures had exercised independently; and the arguments of the Court would have had little or no application if the provision had been an original provision in the Constitution, so that the question would have been—What was the nature of the federal union established? The organization of the Dominion of Canada shows that the control of the federal executive over all legislative acts of the province is not inconsistent with a federal union.


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Some controlling power over taxation would be entirely within the scope and spirit of the Union. At present the State laws of taxation may be and in some cases are based upon different principles, so that property may be liable to a double taxation which is generally recognized as inequitable. Income tax and death duties may be collected upon a different basis—one State may levy the tax upon a basis of domicil, another upon the situation of property. It would be well within the spirit of federalism that such a clash of principles should be prevented by a central authority. Further, the decision of the Privy Council in Bank of Toronto v. Lambe note shows that the existence of a controlling power in the central authority leaves a larger sphere of action to the local authority than could in the absence of that control be safely allowed.

The argument of Marshall, C.J., in M‘Culloch v. Maryland,note that the “power to tax is a power to destroy,” is to some extent met by the observation of the Privy Council in the Bank of Toronto v. Lambe,note that the liability to abuse is not a sufficient reason for deciding that a power does not exist. The argument from inconvenience is one which, in any case, must be cautiously applied, and in this case it tells both ways, for in the absence of control the State can, by imposing taxation on objects taxed by the Commonwealth, embarrass the calculations of a Commonwealth Treasurer and impede the collection of federal revenue.

“Taxation” is adopted as being the most comprehensive word for describing all the various means of raising a revenue. “In the broadest sense an exercise of the taxing power occurs whenever a compulsory contribution of wealth is taken from a person, private or corporate, under the authority of the public powers” (Public Finance, by Carl Plehn, p. 77). The practice of enumerating more particularly the modes of revenue (as in the United States Constitution—“taxes, duties, imposts, and excises”) is one which a very slight acquaintance with English history condemns.




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The substantive power of taxation thus conferred is, like every other power of sovereignty, liable to abuse; but the power is legally quite independent of the conditions which attach under the Constitution to the appropriation and expenditure of the proceeds of the tax.

The power is subject to the following conditions:

1. “Taxation; but so as not to discriminate between States or parts of States.”

This is a “federal” condition for the protection of the States against the Parliament. As originally drawn, it followed the terms of the Constitution of the United States as to duties, imposts, and excises, and provided that taxation should be “uniform throughout the Commonwealth.” But this was more than the federal spirit required; it prevented not merely discrimination among the States, but discrimination in the case of individuals; and the Convention, warned by the observations of the Supreme Court of the United States in Pollock v. The Farmers' Trust (the Income Tax Case),note adopted terms of geographical limitation.

“Discriminate” is ordinarily used in two senses—“to distinguish” merely, and to “distinguish adversely.” It would be reasonable to suppose that the latter meaning attached here, as it undoubtedly does in sec. 117, both as restricting in a less degree the power which has been conferred on Parliament, and as satisfying the federal purpose of the provision. But against this view there are some forcible reasons. In the first place, “discriminate,” in its dyslogistic sense, is followed by “against” and not by “between.” In the second place, where discrimination in favour of or against a person or interest has been forbidden, the legislature has used some qualifying term to indicate the character of the prohibition; and the Courts have been careful to point out that not all discrimination, but only discrimination of a particular kind was prohibited, e.g. the “unjust discrimination” by the Inter-State Commerce Act (United States). In applying the analogous provisions of the Railways Clause Consolidation Act and the Railway


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and Canal Traffic Act, the English Courts have distinguished between the prohibition of “undue preference” and “undue prejudice” on the one hand, which casts upon them the duty of ascertaining whether the preference or prejudice is “undue,” and the obligation to impose equal rates, on the other hand, which is an “absolute statutable obligation,” and when it applies requires the Company to charge a rate “equal to all persons without reference to the particular advantage to be derived by any individuals or class of individuals.”note Similarly, in sec. 102, the Constitution itself, dealing with railways, recognizes the distinction between “preference” or “discrimination,” and “preference or discrimination which is undue or unreasonable, or unjust to any State,” by conferring power on Parliament to forbid undue or unreasonable discriminations only. Finally, the disposition of the Courts to adopt a construction favouring the more extensive power of Parliament as against one which would fetter its discretion (as by preventing it from distributing taxation according to the principle of special benefit accruing to particular areasnote) would be checked by the consideration that such a construction would cast upon the Courts the invidious duty of pronouncing upon the justice of the action of Parliament in that matter which has always been pre-eminently a matter of Parliamentary concern, and would require them to undertake the solution of difficult economic problems.

2. The Commonwealth (i.e. the Parliament) may not impose any tax on property of any kind belonging to a State (sec. 114).

This prohibition is accompanied by a provision that the State shall not impose any tax on property of any kind belonging to the Commonwealth; and section 114 may be


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compared generally with sec. 125 of the British North America Act, 1867, under which no lands or property belonging to Canada, or any province, shall be liable to taxation. In the United States it has been established by judicial decision that neither Congress nor a State Legislature may tax the “Governmental agencies” of the other. “That the power to tax involves the power to destroy; that the power may defeat and render useless the power to create; that there is a plain repugnance in conferring upon one Government a power to control the constitutional measures of another, which other, in respect to those very measures, is declared to be supreme over that which exerts the control, are propositions not to be denied.”note In the Bank of Toronto v. Lambe,note the Privy Council expressly refused to apply this doctrine to provincial taxation of corporations constituted under Dominion laws, on the ground that though the doctrine of Marshall, C.J., was applicable where “each State may make laws virtually uncontrolled by the federal power, and subject only to the limits placed by law on the range of subjects within its jurisdiction,” it was inapplicable where the controlling power possessed by the Dominion Government over provincial legislation effectually protected Dominion interests from destruction by the Provinces. Obviously that case decides nothing as to the taxation of Provincial instrumentalities by the Dominion.

In the Commonwealth the power of the State may depend upon the view taken of the Commonwealth power to make laws with respect to “taxation.” If the true meaning of that power is that the Commonwealth Parliament may control the taxation of the States, there is in the Commonwealth as in Canada a power which may intervene more effectually than the Dominion Executive to prevent an abuse of power by the States. If, as is probable, the power over “taxation” is limited to taxation imposed by the Commonwealth Parliament itself, the doctrine of Marshall, C.J., is applicable to both State and Commonwealth.


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But in such a case it might be held, though not necessarily, that both State and Commonwealth are subject to no other restriction than that specially provided in sec. 114—that neither may tax the property of the other. It may be argued that sec. 114 is exclusive of other exemptions, since “property” would be exempt as an “agency or instrumentality,” and if agencies generally are to be exempt, section 114 is superfluous. But there may be property which is not a “governmental agency,” e.g. land of the Commonwealth for a National University, or a Library or Museum, or property of a State situated in another State; and upon these, section 114 would operate. Adopting the view that the governmental agencies of the State are exempt from Commonwealth taxation, it remains to see what they are. “Governmental agencies” have been described as “the means or agencies through or by the employment of which the States perform their essential functions, since if these were not within their reach they might be embarrassed and perhaps wholly destroyed by the burdens it (i.e. the Federal Government) should impose.”note Among these agencies are municipal corporations or other governing bodies, the courts or the process of the courts, the salaries of judges or officers of a State; and, generally, every instrument employed by the government to carry its powers into execution.

Section 81. All revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund.

Appropriation and Expenditure; Issue and Audit.—By section 83, “No money shall be drawn from the Treasury of the Commonwealth except under appropriation made by law.”

This emphasizes the constitutional rule of the control of Parliament over expenditure, as to which there was at one time much misconception in Australia. “Appropriation by law” excludes the once popular doctrine that money might become legally available for the use of the government


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service upon the votes of supply of the Lower House. As will be seen, some appropriations of public money are made by the Constitution itself; for the rest, it will be for the Parliament to determine what matters are to be provided for by permanent and what by annual acts. The Parliament will also have to determine how public money appropriated shall be issued from the Treasury, and to make provision for ensuring that money drawn for any purpose has been expended upon that purpose. The Constitution properly leaves the details of “issue and audit” to be settled by the Parliament. Until provision is made, the existing laws of the States are to apply (sec. 97). Provision for the immediate needs of the Commonwealth is made by a clause in sec. 83, under which the Governor-General in Council may, until a month after the meeting of Parliament, draw moneys necessary for the maintenance of the transferred departments, and for holding the first elections.

The Consolidated Revenue Fund “shall be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by this Constitution” (sec. 81). This provision is similar to that contained in the Constitutions of the Australian Colonies and the British North America Act, 1867.

A Consolidated Fund has long commended itself to British statesmen in preference to the assignment of specific taxes to specific charges. The ear-marking of the revenue from customs and excise by the Constitution is, however, an exception to the principle.

“Shall be appropriated” means, of course, by “the Parliament.”

What are “the purposes of the Commonwealth”? Are they limited to carrying into effect the matters committed by the Constitution to the Commonwealth Government, or has the Parliament, with its unlimited power to raise money, an unlimited power to determine what are the purposes of the Commonwealth? In the United States, after keen controversy, it is now agreed that “the power of


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Congress over the Treasury is in effect absolute, and extends to the appropriation of money for any object which in their judgment will conduce to the defence of the country or promote its welfare.”note This, however, is under an express power to “provide for the general welfare.” In Canada, the government whose powers are limited by enumeration—the provincial government—has power to raise a revenue by direct taxation “for provincial purposes”; and the Judicial Committee has held that this includes direct taxation “for a local purpose upon a particular locality,” and is not confined to general provincial purposes, and this notwithstanding that there is another article under which the Provincial Legislature may impose licenses “in order to the raising of a revenue for provincial, local, or municipal purposes.”note It must be remembered, however, that amongst the matters of provincial power are “all matters of a merely local or private nature in the Province.” The Commonwealth Government is without either of the attributes which seem material to the conclusion arrived at in the United States and in Canada. There is also some indication of a restricted power of expenditure. By section 96, the power to grant financial assistance to a State is the subject of a special grant, which, of course, suggests that such assistance could not be given under the general power to appropriate moneys for the purposes of the Commonwealth. On the other hand, the Government of the Commonwealth is a national government, and for some portions of its dominions the sole government, and it might not unreasonably be contended that, as has been said of the Government of the United States, it may play the part of “a public-spirited individual who draws his purse strings for the common good”; that it may go into the market and do whatever can be done by the use of money without the exercise of legislative, executive, or judicial power.note This does not


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necessarily involve any invasion of the powers of the State, for an unlimited power to appropriate does not imply an indefinite extension of legislative power. The Parliament might well be able to provide money for a national university and yet want the power to acquire land compulsorily for buildings or to exempt it from the operation of the State laws concerning educational institutions. In any case, the restriction on the power of appropriation and expenditure seems to be subject to political sanctions merely.

Charges and Liabilities.—“The costs, charges, and expenses incident to the collection, management, and receipt of the Consolidated Revenue Fund shall form the first charge thereon” (section 82).

This is the only matter which is specifically created a charge. The provision is similar to that in existing Constitutions; and, though the practice may be to appropriate money for these charges, there can be no doubt that the opinion of the Imperial Law Officers in 1878 is correct, that the moneys necessary are “legally available for, and applicable to, the purposes mentioned …. because they are, in fact, specifically appropriated by the Statute in question.” Other specific appropriations by the Constitution are the salary of the Governor-General, which, until the Parliament otherwise provides, shall be £10,000 (sec. 3), and the salaries of the Ministers of State, which, until the Parliament otherwise provides, shall not exceed £12,000 a year (sec. 66).

The principal “liabilities imposed by this Constitution” are the following:

1. Sec. 89.—Until the imposition of uniform duties of Customs, to pay to each State, month by month, the balance of the revenues collected by the Commonwealth in that State after debiting to it:

  • (a) The expenditure therein of the Commonwealth incurred solely for the maintenance or continuance as at the time of transfer of any department transferred.



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  • (b) The proportion of the State, according to the number of its people in the other expenditure of the Commonwealth.

2. Sec. 93.—During the first five years after the imposition of uniform duties of Customs, and thereafter until Parliament otherwise provides, to pay balances as provided by sec. 89, but the credit basis of each State is not collection of duties, but consumption of imports or produce in the State.

After five years from the imposition of uniform duties of Customs, Parliament may provide, on such basis as it deems fair, for the monthly payment to the several States of all surplus revenue of the Commonwealth (sec. 94). This wide power is subject to the prohibition of preferences by sec. 99, and (temporarily) to the provisions of sec. 87.

3. Sec. 87.—During a period of ten years after the establishment of the Commonwealth, and thereafter until the Parliament of the Commonwealth otherwise provides, of the net revenue of the Commonwealth from duties of customs and excise, not more than one-fourth shall be applied annually by the Commonwealth towards its expenditure. The balance shall, in accordance with this Constitution (i.e. sections 89, 93, and 94), be paid to the several States, or applied to the payment of interest on debts of the several States taken over by the Commonwealth (see sec. 105).

This is a contingent liability, and attaches to the Commonwealth only in respect to one of the possible sources of revenue. It was assumed, however, as a matter of political necessity that the Commonwealth must raise a Customs revenue; and the States which have relied in the past so largely upon the customs were not prepared for a financial revolution such as would be involved in a resort to direct taxation for all State purposes. It was generally accepted, therefore, that they must be assured of some part of their accustomed revenue; and, finally, Sir Edward Braddon's plan, “the Braddon Blot,” as it was called for a time, was adopted, as making a rough provision for the maintenance of existing conditions.




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Sec. 82. …. “And the revenue of the Commonwealth shall, in the first instance, be applied to the payment of the expenditure of the Commonwealth.”

The expression, “expenditure of the Commonwealth,” is an ambiguous one, but it is used in sections 87 and 89 to exclude payment of balances to the States and payment of State debts. The direction as to first application of revenue must be subject to the ear-marking of three fourths of the revenue from customs and excise under section 87. In fact, this provision of section 82 really belongs to the scheme of financial arrangement adopted by the Convention at Adelaide, and subsequently abandoned in favour of section 87. By that scheme the maximum “expenditure of the Commonwealth in the exercise of the original powers given to it by this Constitution” and the “expenditure of the Commonwealth in the performance of the services and the exercise of the powers transferred from the States to the Commonwealth by this Constitution” were fixed for a term of years.

In addition to the specific appropriations already referred to, there are other matters of expenditure which are either fixed by the Constitution or which, when fixed by the Parliament, are not freely alterable by it. By section 48 the salary of a member of either House is fixed at £400 a year, but only until the Parliament otherwise provides. On the other hand, the salary of a justice of the Federal Court is left to the Parliament to determine, but when fixed it shall not be diminished during his continuance in office (sec. 72). As an incident to the transfer of public departments to the Commonwealth, the Commonwealth assumes all the current obligations of the State in respect of such department (section 85, subs. iv.); is bound to compensate the State for any property passing to the Commonwealth for the purposes of a department (section 85, subs. iii.); and by section 84 the Commonwealth is subject to certain present liabilities of the State to officers of public departments taken over by the Commonwealth.

Financial Relations of the Commonwealth with the


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States.—These are involved in, but not exhausted by, the liabilities imposed upon the Commonwealth. The financial difficulties were not completely provided for by securing to each State the return of its proper proportion of revenue; for, as the colonies relied in unequal degrees upon the tariff, a Commonwealth tariff securing to one colony the return of an amount suited to its needs would embarrass others by a surplus or a deficit. It is accordingly provided (sec. 96), in terms following those adopted in sec. 87, that “during a period of ten years after the establishment of the Commonwealth, and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit.” The words “and thereafter until the Parliament otherwise provides” are apt enough in sec. 87, but cause some difficulty in sec. 96. Sec. 87 is a section restrictive of the full power over appropriation; the restriction is temporary, and, after the expiration of its term, may be removed by the Parliament. But sec. 96 is enabling, and, according to the ordinary meaning of the terms used in the section, the power to assist the States would come to an end, when, after ten years, the Parliament shall “otherwise” provide, apparently by some Act of prohibition or by the mere repeal of existing Acts providing for financial assistance. It might, indeed, be urged that a legislative body cannot bind itself in the exercise of its legislative power, and that when Parliament has “otherwise provided” it can restore the status quo. But this contention has already been urged before the Judicial Committee without success. In Brophy v. A.G. of Manitoba note the Board said: “The Chief Justice of the Supreme Court (of Canada) was much pressed by the consideration that there was an inherent right in a legislature to repeal its own legislative acts, and that ‘every presumption must be made in favour of the constitutional right of a legislative body to repeal the laws which it has itself enacted.’ …. Their Lordships are


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unable to concur in the view that there is any presumption which ought to influence the mind one way or the other.”

It is to be noted, however, that section 51 (xxxvi.) expressly empowers the Parliament to make laws with respect to “any matter in respect of which this Constitution makes provision until the Parliament otherwise provides”; and probably, therefore, the power of the Parliament to grant assistance under sec. 96 is perpetual, and the period specified in sec. 96 is to be regarded as a term in the federal bargain indicating that during this transition period assistance to a necessitous State will be a proper and probable object of the Commonwealth concern. But the case is hardly in pari materia with the other cases for which “this Constitution makes provision until the Parliament otherwise provides.”

The colony whose exceptional position caused the principal difficulty in the financial adjustment was Western Australia. By section 95 Western Australia may, subject to various conditions, continue to impose duties for five years after the imposition of uniform duties of customs. These conditions are (1) that the duties shall not exceed those in force in Western Australia at the time of the imposition of the uniform duties of customs; (2) that they shall diminish by one-fifth annually; and (3) that they shall not be imposed on goods imported from without the Commonwealth except when the Western Australian duty is higher than that imposed by the Commonwealth.

The Debts of the States.—Section 105. “The Parliament may take over from the States their public debts as existing at the establishment of the Commonwealth, or a proportion thereof, according to the respective numbers of their people as shown by the latest statistics of the Commonwealth, and may convert, renew, or consolidate such debts or any part thereof; and the States shall indemnify the Commonwealth in respect of the debts taken over, and thereafter the interest payable in respect of the debts shall be deducted and retained from the portions of the surplus


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revenue of the Commonwealth payable to the several States, and if such surplus is insufficient, or if there is no surplus, then the deficiency on the whole amount shall be paid by the several States. See also sec. 87.

Customs, Excise, and Bounties.—It is in regard to customs and excise duties—“the tariff”—that there is the most immediate connection between finance and trade, since such duties are imposed as well for the regulation of trade as for the raising of a revenue; and the main purpose of the Commonwealth was to secure uniformity in such duties, and their abolition as regards the intercolonial trade.

i. On the establishment of the Commonwealth, the collection and control of duties of customs and of excise, and the control of the payment of bounties passed to the Executive Government of the Commonwealth (sec. 86); and the departments of customs and of excise in each State were transferred to the Commonwealth (sec. 69). All property of the State, used exclusively in connection with the departments controlling customs and excise and bounties, vested in the Commonwealth (which is to pay compensation therefor) for such time as the Governor-General in Council may declare to be necessary; and the Commonwealth assumed the current obligations of the State in respect to the transferred departments (section 85). The laws of the State relating to the matters transferred will remain generally in force until the Commonwealth otherwise provides in virtue of section 108; but obviously some provisions are abrogated by the mere fact of transfer from the separate governments to a single government. By section 52 the Parliament of the Commonwealth has exclusive power to make laws with respect to matters relating to the control of the departments transferred.note

ii. But notwithstanding these provisions, the States


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retain the power to impose duties of customs and excise, and to grant bounties until the imposition of uniform duties of customs by the Commonwealth Parliament. Upon such imposition of uniform duties, the power of the Commonwealth Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods becomes exclusive, and the State laws imposing duties of customs or excise or offering bounties cease to have effect. (Section 90.)

iii. The exclusive power of the Commonwealth Parliament and the withdrawal of power from the States are subject to the following provisions:

(a) Under section 88, uniform duties of customs shall be imposed within two years after the establishment of the Commonwealth. This is of course merely a directory enactment, unattended by any sanction.

(b) Any grant of or agreement for any bounty lawfully made by or under authority of the Government of any State shall be taken to be good if made before the thirtieth day of June, 1898, and not otherwise. (Section 90.)

(c) “Nothing in this Constitution prevents a State from granting any aid to or bounty on mining for gold, silver, or other metals, nor from granting, with the consent of both Houses of the Parliament of the Commonwealth expressed by resolution, any aid to or bounty on the production or export of goods.” (Section 91.)

(d) “… A State may levy on imports or exports, or on goods passing into or out of the State, such charges as may be necessary for executing the inspection laws of the State; but the net produce of all charges so levied shall be for the use of the Commonwealth; and any such inspection laws may be annulled by the Parliament of the Commonwealth.” (Section 112.)

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