The Australia Institute today released a report commissioned from economist Saul Eslake exploring tax reform possibilities for Tasmania as it emerges from the COVID-19 pandemic and recession.
The report proposes reforms in three areas of Tasmania’s state taxation system:
- Replacing stamp duties on the transfer of land (conveyance duty) with a broadly-based land tax, levied at progressive rates on the per-square-meter value of individual land holdings, with no exemption for owner-occupied housing but with transitional provisions to avoid ‘double taxation’ and deferral provisions to cater for people who may be ‘asset rich but income poor’ (such as retirees and pensioners);
- Lowering the rate and broadening the base of payroll tax, by substantially reducing the threshold at which employers become liable to payroll tax, and providing exemptions for new businesses; and
- Re-introducing estate duties which were abolished in Tasmania in the late 1970s, but structuring them so that less than 10% of all estates would be liable to pay them, and giving those who would be liable to pay them the option of reducing or eliminating entirely their liability by making gifts or bequests to Tasmanian charities and not-for-profit institutions.
“Like other states, Tasmania is limited in the types of taxes it can levy to raise revenue to pay for the services its citizens rely on. The current economic downturn means that now more than ever, that narrow base of taxes are as efficient and as fair as possible,” said Leanne Minshull, Tasmanian Director of The Australia Institute.
“Payroll tax is the Tasmanian Government’s most important ‘own’ source of revenue – that is, under its direct control rather than being determined by an outside agency, as with the revenue from Tasmania’s share of the GST,” said Saul Eslake, economist and report author.
“Over the ten years to 2019-20, successive Tasmanian Governments have collected $3,227 million in revenues from payroll tax, which represents 16.0% of total ‘own source revenue’ or 5.9% of total revenue.
“In the 2019-20 State Budget Papers, the Tasmanian Treasury estimated that the tax-free threshold for payroll tax would deprive the government of $166.3 million in revenue that it would otherwise have collected in 2019-20 – equivalent to 44% of the revenue it predicted the government would collect from employers who aren’t exempt from it, or just $3mn less than the total amount the budget provided for spending on housing and community amenities in 2019-20.
“Payroll tax has not supressed jobs growth in Tasmania. The overwhelming majority of jobs growth in the past four years has occurred at businesses already subject to payroll tax,” Mr Eslake said.
Furthermore, preferential tax treatment could be implemented for new Tasmanian businesses.
There are three advantages of this approach:
- new businesses are much more likely to be innovative so that preferencing new businesses is more likely to foster productivity growth;
- there will always be far fewer new businesses than established ones, so that providing preferential tax treatment for new businesses will entail a much smaller cost in terms of revenue foregone than providing preferential treatment for existing businesses; and
- there is no way that a new business can prevent itself from becoming an a more mature business – and hence no longer qualifying for tax preferences for new businesses – other than by going out of business (in which case it no longer qualifies for preferential tax treatment) – so that the problem of ‘perverse incentives’, where by businesses choose to stop expanding their payrolls at a level just below the tax-free threshold no longer exists.