With both State and Federal governments failing to wake up to the realities of the new economic normal far too late, it was only a matter of time before the stoush over taxation revenues began.
State treasurers are to push for the first significant extension of the GST as an international survey finds its earning power embarrassingly low.
The Organisation for Economic Co-operation and Development survey, Consumption Tax Trends 2012 finds that Australia’s GST accounts for just 14 per cent of nationwide tax collections, compared with an average among developed nations of 19 per cent.
Britain’s Value Added Tax brings in a more typical 20 per cent. The New Zealand GST brings in 27 per cent.
Among developed nations only Canada, Japan and Switzerland charge less GST than Australia. The typical rate is 18 per cent, almost double Australia’s 10 per cent.
The report mentioned can be found here which contains the following chart which is sure to be used by the states as ammunition.
Last week the OECD also released their Australia 2012 report in which they too recommended an increase in the GST takings, however, they also suggested the removal of state-based stamp duties and the broadening of the land tax base to owner occupiers. This is something Wayne Swan has focussed on over the last week.
Wayne Swan has called on the states to “do their share of heavy lifting” on tax reform and urged treasurers to follow an ACT government move to phase out stamp duties on home sales over time.
The states in reply:
State governments have rejected a demand by federal Treasurer Wayne Swan that they pay for winding back their own inefficient state taxes by lifting property rates rather than be compensated by an increase in the goods and services tax.
NSW Treasurer Mike Baird rejected Mr Swan’s plan to use today’s meeting with state treasurers to get rid of the stamp duty on home sales and shift towards the ACT government model of phasing out the duty in return for a quarterly property tax.
“You can’t compare the ACT with other states like-for-like,” Mr Baird said, “We would argue you need Commonwealth co-operation if we want to take a quantum leap.”
NSW, Tasmania and South Australia have called for a comprehensive review of the GST, in line with an Organisation for Economic Co-operation and Development report on Friday. They said they would look at stamp duties and insurance taxes in tandem if the Commonwealth committed to a trade-off like lowering the GST threshold on imported goods, which includes online purchases
So the cherry picking of taxation recommendations continues as it appears no level of government actually wants to take on the responsibility of serious tax reform, preferring to defer to another party to keep the cash flowing.
But given the monumental joke of the current resource tax architecture and what looks like a structural new normal in stamp duties it is inevitable that governments will be forced into agreement of some kind soon enough. The OECD is recommending a package of changes:
- Reduce corporate tax rate and a possibly extend loss carry-back scheme to unincorporated firms
- Review tax credit for business for excise taxes on fossil fuels in sectors not covered by the new carbon tax
- Broaden the minerals resource rent tax coverage
- Consider replacing state royalties with a mining rent tax modelled on the federal approach, allowing states to set their tax rates
- Rationalise other state taxes such as reducing or removing conveyance duties
- Broaden the base of the goods and services tax (GST) and consider increasing its relatively low rate
But the point is they are a package of changes. You can’t just pick the one you like.
Disappointing position by the NSW Govt.
They would sooner argue for an increase in a Canberra centric tax like GST – where the states remain impotent policy voids – than independently take action to remove an inefficient tax like stamp duty and expand one – general rates/land tax – that is efficient and would allow some policy independence and competition in the federation.
What are you waiting for Mr O’Farrell? A larger majority?
You mentioned it but I think the larger point is the actual conversation of removing stamp duties is taking place in the MSM. I remember a year or more ago mentioning to a bunch of solicitors that the states might get rid of stamp duty to replace it with a land tax. The comment was met with laughter.
So the OECD believes we should be in a race with other countries to see who can tax the peasants the most.
The word transparent comes to mind.
+1 Spot on John it’s a race which revolves around supporting governments who need to finance their bloated public service sectors, their debt policies which finance welfare and pension promises which are not sustainable.
What is an increase in GST going to do for new housing and retail ?
Something else has to give .. ?
An increase in GST would have the desired effect of reducing activity in housing and retail. That’s a big reason for increasing it. The alternative is increasing debt and in particular increasing foreign debt.
Its the overall structure of the economy and all the other bodgie taxs as well. Increasing GST to attack the CAD is not a good reason without overall reform in other sectors and taxation and I get annoyed with the fact that small business bears the brunt re BAS’s etc.
Also i agree with 3d re the mining sector.
The issue is coming up with a system that minimises the damage and maximises the benefits of this current bubble system, where money can flow into a particular asset such as Iron ore, rare earth etc, make it look extremely profitable and then flow on to the next asset or commodity like the AUD.
Yeah i am in favor of some form of land tax combined with political reform at all three levels of government.
Yes – start to re-balance the relative attractions of consumption and investment.
What exactly does the OECD mean by ‘broaden the mining tax base’?
Has this tax now morphed from a super profits tax to to an additional general tax applied to the mining sector only? Does OECD mean the tax be applied to minerals other than i/o and coal? Most mining companies do not make super profits – to ‘broaden’ the tax is potentially damaging to existing small and mid-tier operators and potentially damaging to the much needed future investment in exploration and development of the Australian resources sector.
Why? If these small/medium businesses don’t have super profits, what do they have to worry about the introduction of such a tax?
Why not have progressive marginal tax rates for businesses as well as incomes?
The very notion of broadening the base may indicate other changes – and it is not only the tax itself, it is the constant instability in resource tax regimes that also presents a problem. Resource projects are years in the making and subsequent years in production: a stable fair tax regime is essential.
Standby for David Collyer to explain the much more valid Land Tax.
Put simply there’s no point squeezing the average family with limited results, given the amount to be gained compared to chasing the land bankers.
Land tax already applies to investment properties in most States. Removing stamp duties will require a significant new source of revenue.
Lumping it all on new property will simply continue to limit the supply of low cost land.
No reason why those who own land should not be taxed considering the amount of public money that is spent providing services like access roads, sewerage, power, garbage collection etc.
Higher general rates is all that is required.
If certain land owners (for example the ever ‘suffering’ working family or some pensioners) require some sort of rebate of welfare payment to help meet their property tax obligations, that is always an option.
Pensioners could pay the land tax via a ‘reverse mortgage’ provided by Centrelink as an extension of the ‘Pension Loan Scheme’
I talked with one pensioner, who bought their house in Surry Hills for $20k and it is now worth $1.2million and she was complaining that they do not get any pension due to their ‘other’ investments. So wrong….
Yes – I find myself shedding few tears for those with property assets of $1.2M who insist that others pay to maintain the services and the other expenses required by their property holdings.
Principle residence is not counted for centrelink. She must be a dog food millionare.
She has other investments that put her above the limits for the pension.
Yep, you can have a $10m PPOR and $1m in cash and still get a part pension. Mad as batpoo…
“If certain land owners (for example the ever ‘suffering’ working family or some pensioners) require some sort of rebate of welfare payment to help meet their property tax obligations, that is always an option.”
I really dislike the idea of taxation and buying support through welfare. Why should taxpayers subsidise home owners simply because they can’t afford to own a home?
After all, they can always sell and rent.
I agree.
The closest one can get to a legitimate argument is that some elderly people may have done their retirement ‘sums’ on the basis that their property ownership would continue to be subsidised from general revenue and they need only scrape together the cash needed for the current trivial level of ‘general rates’.
But giving a hard cases in the ‘pensioner’ category a pass (though some form of charge on the property recovered from the estate would be preferable) is a much better solution than not doing anything at all and allowing the current system of property subsidisation to continue.
Does anyone seriously think that the current level of rates comes anywhere near meeting the costs associated with providing or maintaining the services required by the average suburban “castle”.
Mr Swans main argumnet aginst raising the GST is that it is a regressive tax. So why not just raise the tax free threshold and relevant wefare payments to compensate?
Raising the GST to 20% is the only way (apart from a land tax) of including the aged in contributing to the tax base.
I think Mr Swans main objection to increasing the GST rate or broadening its base is that it would require him communicating a case for reform.
Namely, that medium /long term benefits, that may not be reaped until his retreat to the golden world of pollie superannuation, warrant short term change and adjustment.
Fortunately for Mr Swan, the opposition appears equally myopic when it comes to economic reform.
It’s political poison. Look at how expedient the Henry review was when the hard policy decisions were needed to be made. The Libs don’t have the moral courage to do what is right either. It’s going to be more of the same and a bout of headlines continuing the battle between the States and Feds.
The States have few choices for tax reform. They could:
(A) Replace stamp duties with a broader and more efficient land tax
(B) Take back their income taxing powers
(C) Get a share of an expanded/broadened GST in exchange for removing a few other petty taxes that raise almost nothing.
That is really it. I cannot see B happening without revolutions or secession. (A) is an option they can pursue without recourse to the Feds I reckon (A) will happen sooner or later as they need to replace what was one of their principal earners in stamp duty and it is never coming back like the glory days. (C) requires Feds to push it so that is the easiest button to push.
The Feds have heaps of other options most of which are mentioned in the Henry Tax Review but they will do nothing ahead of an election!
A shift of the tax load from company/individual tax to gst will also shift the tax load, firstly from profit based taxes to transaction based taxes. This will mean tax receipts should probably slow less when the economy slows.
It also shifts the tax load for capital intensive versus labour intensive businesses.
Big changes may cause big disruptions in the short term.
The OECD report is little more than a rehash of the Federal Treasury’s wish list.
The debate for more taxes shd be replaced with debate/action to make government live within their means. If they wish to introduce grandiose schemes involving billions of more spending then they shd find it within current taxes and effiencies.
Comment has been made here that all this is about is taxing peole more and companies less. Hopefully the pollies will get the message that anyone silly enough to continue this debate won’t get into power.Better spending of current taxes shd be the direction.
Landtax on homeowners is just another way of hitting people for more tax. Again hopefully homweowners once they realise what is going on will get the message to pollies to spend current taxes better.
And let me again offer up for readers’ consideration
- removal of funding for the ABC & SBS
- removal of funding for the Australian Sports Commission
- removal of funding for the Australia Council
That’s about $2 bn in taxpayer dollars saved, right there. Effect on our economy – nil. Effect on our society – nil. Wanna play sport, make a painting, watch a TV show ? Go right ahead, there are still plenty of non-government funded opportunities available to you.
Or we could halve the diesel fuel subsidy and save about $2.5b in one hit.
That will just make our most productive sectors less cost effective vs competitors. Whereas abolishing the ABC/SBS, Australia Council and Sports Commission will have zero impact on our competitiveness where it actually matters.
Expected that answer from you lonney. Subsidy’s a subsidy. You can phase out the rebate and the recipients are still getting a pretty good deal. Most of the recipients are pretty profitable.
Why ?
If you don’t live within your means you go bankrupt. That also applies to Sovereigns.
Perhaps I was not clear enough.
The “whys” I am asking, are:
* Why must Government expenditure remain static, regardless of circumstance ?
* Why are current levels the correct levels ?
drsmithy, a good question with a number of ways to answer that would take pages. Briefly, what are the circumstances, if war most will agree on an increase. Otherwise why not just inline with CPI (as Swan has more or less ‘promised’). Also if society views tax as too high this encourages tax evasion or other non productive ways of getting around tax.
Why are current levels correct? Because Govt is providing adequate services and savings can come from more efficiencies or waste cutbacks. I have worked in the public service in canberra for a number of years and also in parliament for a short time and was surprised at the wasteful spending.
We must work out what we need as opposed to what would be nice to have. Governments cannot provide everything everyone would like to have…again look at Europe.
Our society incl governments seem to be taken in at present with spending sprees and need for more tax instead of living within our means.
Otherwise why not just inline with CPI (as Swan has more or less ‘promised’).
Because that assumes current levels are adequate.
Also if society views tax as too high this encourages tax evasion or other non productive ways of getting around tax.
There is little evidence Australian society (other than the usual cohort of Libertarians who consider any tax to be too much tax) consider current taxation levels to be too high. Which is hardly surprising, given they’re at the lowest levels in decades.
The last time I saw a survey about taxation, people were overwhelmingly prepared to pay more tax for an increase in services like healthcare and education.
Because Govt is providing adequate services and savings can come from more efficiencies or waste cutbacks.
You must travel in different circles to me if you think people are happy with the state of infrastructure, public schools, healthcare, welfare and public housing (to use but a few examples).
I have worked in the public service in canberra for a number of years and also in parliament for a short time and was surprised at the wasteful spending.
I have worked in private industry for fifteen years and always been surprised at the wasteful spending.
The plural of anecdote is not data.
We must work out what we need as opposed to what would be nice to have.
No.
We as a society must decide what services and products we _want_ to be publicly funded.
“Need” is a meaningless word. I consider that we “need” education and healthcare, a livable welfare system and critical infrastructure like power, water and telecoms distribution to be publicly funded. Yet many here would (and have) argued against all of the above.
Governments cannot provide everything everyone would like to have…again look at Europe.
“Governments” don’t provide publicly funded services, society does.
Most European countries don’t have a problem funding their social services programs and are consistently rated as the best places in the world to live and work.
Our society incl governments seem to be taken in at present with spending sprees and need for more tax instead of living within our means.
The facts are taxation in Australia is quite low (amongst the lowest in the developed world) and has been on downward trajectory for decades. You haven’t given any reason why it should be fixed at this point in time and not, say, a decade ago when it was higher (or decades before that when it was higher still).
Let me get this right.
All of the treasurers in the room are going to ignore the elephant in the room (need for a comprehensive land tax to sting the land squatters and minimize transactional penalities for upgrading/downgrading homes) – despite a detailed two volume blue-print laying out the road map provided by Ken Henry – and instead raise the regressive GST so that lower income earners are disproportionately stung because the GST eats up more of their income on essentials such as food etc!?
Additionally, a chance for greater social equality (balance in the tax system) is over-looked in addition to all the lost productivity that comes with having cheap land given this is a significant input for any business operator.
Welcome to the ‘corptocracy’ – every rentier wins a prize!
Perhaps the treasurers should wake the hell up and revisit Part 1 – Section C2 of the Ken Henry Report overview:
http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_12.htm
“Recommendation 51: Ideally, there would be no role for any stamp duties, including conveyancing stamp duties, in a modern Australian tax system. Recognising the revenue needs of the States, the removal of stamp duty should be achieved through a switch to more efficient taxes, such as those levied on broad consumption or land bases. Increasing land tax at the same time as reducing stamp duty has the additional benefit of some offsetting impacts on asset prices.
Recommendation 52: Given the efficiency benefits of a broad land tax, it should be levied on as broad a base as possible. In order to tax more valuable land at higher rates, consideration should be given to levying land tax using an increasing marginal rate schedule, with the lowest rate being zero, with thresholds determined by the per-square-metre value.
Recommendation 53: In the long run, the land tax base should be broadened to eventually include all land. If this occurs, low-value land, such as most agricultural land, would not face a land tax liability where its value per square metre is below the lowest rate threshold.
Recommendation 54: There are a number of incremental reforms that could potentially improve the operation of land tax, including:
- ensuring that land tax applies per land holding, not on an entity’s total holding, in order to promote investment in land development;
- eliminating stamp duties on commercial and industrial properties in return for a broad land tax on those properties; and
- investigating various transitional arrangements necessary to achieve a broader land tax.”
Treasurers should note that there is NO recommendation for raising the GST in the Ken Henry Review. Funny that.
Can they at least pretend that they are not in the pockets of the landed gentry with a better cover story or rationale!?
Here’s some figures provided by Gavin Putland that back up my previous assertion that land tax is the answer to the state’s revenue problems (the man is sharp – bookmark his site).
You should note keenly:
1. the abysmally LOW rate of land tax as a % of tax revenue using GDP as the yardstick.
2. that income is disproportionately stung clearly given the chasm between personal income tax and corporate tax.
3. the heart palpitations being experienced by the stamp duty indicator in red, showing that SDs are volatile, inconsistent sources of tax revenue compared against a comprehensive land tax.
4. Gavin estimates an annual land tax rate of 1.42% for Victoria on all residential, commercial and rural land could replace stamp duties, payroll tax and insurances taxes. Retaining an exemption for owner-occupied land results in the annual land tax rate rising to 3.06% per annum
http://blog.lvrg.org.au/2012/12/oecds-cure-for-victorias-revenue-hole.html
“In 2010-11, according to the Australian Bureau of Statistics (ABS 5506.0), Victoria received $4.354 billion in payroll tax, $1.398 billion in land tax, $3.91 billion in conveyancing stamp duty, and $1.456 billion worth of insurance taxes, making a subtotal of $11.118 billion. Suppose this revenue had been raised from a land tax using mid-2009 values (which happen to be close to the minimum values at the depth of the “GFC”). The total value of residential, commercial and rural land in Victoria at that time was $784.2 billion (ABS 5204.0 Tab.61). Then, by simple division, the required land tax rate is 1.42% per annum. That is lower than the top rate under the current progressive land tax (2.25% per annum).
What if, contrary the second half of the OECD’s recommendation, we retain the exemption for owner-occupied residential land, but impose a flat rate on the rest? The residential component of the total land value was $630.7 billion. If we assume that 2/3 of that is owner-occupied and exclude it from the total, the required rate (for the same revenue) rises to 3.06% per annum.”
Ergo, a comprehensive land tax is not pie in the sky crapola and the math works.
Further: major benefits arise; revenue streams are steadied and the lazy rentiers are stung; land prices are driven down; a ‘use it or lose it (pay tax)’ mentality is in play; people are not penalized for moving house or up-sizing/down-sizing, benefits to land banking/squatting are removed; other regressive taxes can be removed at the same time e.g. payroll taxes etc; and so on.
The fact that the general public is not outraged to suggestions of a rise in the GST rate shows they truly remain clueless in the main. I know H&H hates the term ‘sheeple’, but in this instance the definition fits the bill 100%:
“Sheeple (a portmanteau of “sheep” and “people”) is a term of disparagement in which people are likened to sheep, a herd animal. The term is used to describe those who voluntarily acquiesce to a suggestion without critical analysis or research. They undermine their own individuality and may willingly give up their rights.”
How about both federal and state governments stop borrowing money from banks at interest to save their budgets.
They are too corrupt to take back the money creation licences given to commercial banks.
That’s the real issue here. Until governments stop licencing private banks to create the nation’s money, they will be forever in debt and bickering amongst themselves for more money whilst it is being stolen from the community via interst on fictitious debt .
Canadians pay GST and PST (provincial sales tax) depending on their province, so the ‘state’ of Ontario pays about 15% all up, while Nunavit, not so much.
That government taxes on liquor like you’ve never seen…
The GST will get raised. It’s all they know. I don’t know by who and I don’t know when, but I know its coming.
From the Daily Telegraph
“The Financial Times has interviewed German chancellor Angela Merkel, who said Europe will have to “work very hard” to maintain the most generous welfare system. She said government spend should prioritise research and education, and hinted at cuts in social welfare budgets, pointing out that “If Europe today accounts for 7pc of the world’s population, produces around 25pc of global GDP and has to finance 50pc of global social spending, then it’s obvious it will have to work very hard to maintain its prosperity and way of life. All of us have to stop spending more than we earn every year.” “
What a load of crap.
They promised to get rid of transfer taxes and other inefficient taxes when the GST came in. Did they do it then?
Are they going to do it now?
Hell no.
In my view, the best chances of reforming State finances are:
* Conveyancing stamp duty is mostly avoidable;
* Payroll tax apparently violates s.90 of the Constitution;
* The GST, as presently implemented, apparently violates s.55 and s.82 of the Constitution.
At http://t.co/MiJ0AYvf I’ve summarized the arguments. (I had written about s.90 and s.82 before, but this is the first time I’ve written about s.55.)