Red Tape Reduction A Way To Prosperity

Written by:
8 July 2019
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Australia is starting to see bi-partisan economic leadership, with both the federal Coalition government and the WA state Labor government cutting red tape and taxes to unleash prosperity, as President Trump has done in the United States.

One week ago, Prime Minister Scott Morrison announced at an event with the WA Chamber of Commerce and Industry in Perth that the Coalition government would cut red tape, lower taxes, and reform industrial relations as a part of his government’s ambitious economic reform agenda. The red tape reduction effort will be led by the highly capable Ben Morton, the Assistant Minister to the Prime Minister and federal Member for Tangney.

At the state level, the McGowan government announced the Streamline WA web portal on 25 June, which will allow Western Australians to “share ideas on how the government can improve and simplify the regulatory process.” This is an exciting development.

The bi-partisan embrace of cutting red tape is sensible. Cutting red tape does not mean eliminating all regulation. It means eliminating regulation which is unnecessary and goes beyond what would minimally be required to achieve a public policy goal, such safer workplaces. Governments should aim to achieve regulation which is “minimally effective”: the fewest rules needed to achieved a given objective. But the current regulatory regime is far from minimally effective.

Research by the Institute of Public Affairs estimated that red tape costs Australian businesses, workers, and families $176 billion each year, which is the equivalent to 10 per cent of Gross Domestic Product. This cost represents all of the businesses never started, the jobs never created, and the dreams and aspirations which go unfulfilled due to bureaucratic interference.

State government policy is a key driver of this red tape burden. Preliminary research by the IPA found 79 per cent of the total number of regulations required to gain government approval of a resources project in WA are imposed by the state government. And approximately 40 per cent of all regulatory obligations arise form reporting duties alone.

The Roy Hill iron ore mine demonstrates the point. It required some 4,967 licenses, permits, and approvals for the pre-construction phase alone. More were required for the operational and export phases.

On top of the red tape burden are state taxes, foremost amongst them is the payroll tax which is a tax on jobs and wages. When a business’s total wage bill increases as a result of recruiting more staff or paying higher wages, so too does their payroll tax bill.

In WA, businesses must pay the payroll tax when their total annual taxable wages exceed $850,000. However, the threshold in other states ranges from $1 million in NSW (from 2021), to $1.5 million in South Australia. Victoria, hardly a state with a burgeoning resources sector, is the only state with a lower threshold at $650,000.

The cumulative impact of red tape and high taxes is weighing on the WA economy, where new private business investment has declined by over 50 per cent in the past five years, and is at its lowest level in over a decade. At the national level, new private sector business investment is now lower as a percentage of GDP that it was during the Whitlam era.

To avert this decline, the McGowan government should: reform the environmental approvals process to reduce duplication with the federal government, reduce the number of permits businesses require as a part of the planning approvals process, and introduce a one-in-two-out approach as in the United States where two regulations are repealed for each new one introduced.

On payroll taxes, at a minimum the tax-free threshold should be lifted. But a more ambitious agenda would see it scrapped altogether and replaced with the less distortionary broad-based land tax, coupled with reductions to government spending.

Western Australia has always been an entrepreneurial, go-ahead state. It has led the nation for years with a thriving resources sector and can once again be a leader through an ambitious agenda to cut red tape and taxes.

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