Commonwealth Should Hand Income Taxes To The States

Commonwealth Should Hand Income Taxes To The States

“Australia’s tax system is broken and the Palaszczuk government is right to call for structural reform”, said Daniel Wild, research fellow with the free market tank the Institute of Public Affairs.

Today the Palaszczuk government renewed calls for state governments to be given a share of the Commonwealth income tax.

“The best reform would be to allow state governments to levy and set both their own income tax and GST rates. This would see revenue retained where it is raised and reduce incentives for state governments to game the system.”

“Australia’s system of federation is broken. State governments should be responsible for raising revenue for the services they deliver. They are closer to the people than distant politicians in Canberra.”

“Any tax reform must involve the GST. The current GST distribution mechanism – so-called Horizontal Fiscal Equalisation – is deeply flawed in both theory and practice.”

“Under the current GST arrangements, better performing states such as Western Australia are propping up poor performing states such South Australia, leaving them with no incentives to engage in economic reform that will grow their economies.”

“The current income and GST tax system creates incentives for state governments to destroy their own revenue base and undermine long-term growth prospects. This is the opposite of how a good federation should run.”

“It is up to state governments to ensure their states have a prosperous and flourishing future. They must take responsibility for their destiny, not outsource it to Canberra,” said Mr Wild.

A recent IPA report, Time to End GST Redistribution, authored by research fellow Morgan Begg, called for fundamental reform to the GST distribution system by allowing state governments to set their own GST rate and to keep the revenue they raise. Alternatively, the report found that carving up the GST on a state of origin basis or to each state equally per capita would be simpler and eliminate much of the unfairness of the current regime.

The report also reveals that over the life of the GST, Western Australia has lost $16 billion (22 per cent) of the GST revenue that was raised in that state. By contrast, almost $19 billion (24 per cent) of South Australia’s GST revenue is raised in other states.

For media and comment: Evan Mulholland, Media and Communications Manager, on 0405 140 780, or at [email protected]

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