States give in-principle support for harmonisation of payroll and land taxes as Swan rules out GST changes

There is not enough money in the kitty for the states to abolish inefficient state taxes such as payroll, but harmonising state duties over the next few years is a start, Queensland Treasurer Andrew Fraser says.

Kicking off the second session of the tax forum in Canberra yesterday he recommended harmonising the components of state taxes which “can and should form part of the tax system for the future”.

“Not edge towards harmonisation of components but uniform legislation that leaves only the rates and thresholds to be set competitively by each state,” he says.

“We should start with payroll tax and then move to land tax,” Fraser says.

“Running separate regimes across state boundaries in a nation of this size is a construct of our history, not the grand design.

“The states don’t have the immediate capacity to fund reforms being wished for,” Fraser said, adding that state taxes account for 20% of taxes overall, dwarfed by federal taxes. 

The harmonisation push received in principle support from NSW, Victoria and Western Australia.

Tasmanian Premier and Treasurer Lara Giddings concurred, saying if states could rid of taxes such as insurance tax, payroll tax and stamp duty, they would.

“At this stage we have no room to move unless we get further reforms,” Giddings told the panel.

The sentiment was back by CPA Australia’s Paul Drum, who said “tax reform isn’t going to happen unless it’s driven by the Commonwealth,” which has added three taxes – the flood levy, the carbon tax, and the mining tax – since the Henry review was released.

AIG chief Heather Ridout also stressed the importance of federal support but Victorian Treasurer Kim Wells pointed out that while it’s easy to criticise the states, all levels of Government need to look at their own spending. 

“Part of the discussion needs to be the waste between the three levels of Government,” Wells said.

New South Wales Treasurer Mike Baird had another idea, calling for income sharing – “quarantining a part of the income tax to go back to states is a clear way where you can move from inefficient taxes to a much more effective tax base,” he says.

Robert Carling, from the Centre of Independent Studies, told the forum that the first thing on the states’ list should be phasing out the insurance tax, which would have little impact on their bottom line, whereas removing stamp duty would hit harder. 

But Treasurer Wayne Swan has ruled out changes to the GST.

“Some people that believe that the GST is some sort of money tree,” Swan said.

“What seems to be proposed … is somehow we could give the states a lot more money for the taxes they abolish.”

“The fact is the states do have a tax base, but what they have to do is use them.”

Alex Sanchez from the Insurance Council of Australia described the concept of insurance tax as “deplorable”, adding that in the medium to long-term, it was “eminently possible” to run payroll through BAS, collected by the Tax Office.