Federal budget – states could levy income tax

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A 2014 National Commission of Audit proposal, initially dismissed by then prime minister Tony Abbott, could see states and territories collect their own income tax.

For the last 75 years, the Federal Government has been responsible for setting the rates of, and collecting, income tax. The responsibility for this was at the time taken away from states and territories to fund the country’s World War II campaign. In what could be seen as a radical move, Prime Minister Malcolm Turnbull has flagged the opportunity for the Commonwealth to reduce the rate if income tax it collects, allowing states and territories to set a rate of tax deemed necessary to fund services such as health, education and transport. “We, the federal government, will reduce our federal income tax by an agreed percentage and allow state governments to levy an income tax equal to that amount,” he said.

By withdrawing Federal Government funding from a range of existing grant schemes, Mr Turnbull claims taxpayers would see no increase in income tax. “This, we believe, is the only way that we can genuinely reform our federation. It will give the states real financial autonomy,” he said.

The initial proposal made by the National Commission of Audit would see the marginal income tax rate reduce from 32.5 per cent to 22.5 per cent. The states and territories could then impose a levy of more or less than the remaining 10 per cent, depending on the cost to provide services for which funding would be withdrawn.

The plan will be discussed at the Council of Australian Governments (COAG) meeting which will commence in Canberra tonight. While Treasurer Scott Morrison would not commit to the plan, he did concede that he was open to discussing the issue. “ This has been an ongoing dialogue. I’m a pragmatist on all these issues. It is about trying to fix the problem, and the problem is you’ve got to be able to manage your increase in costs and how you are going to pay for them. You can’t pay for something with nothing,” he said.

The Treasurer also said that, “The Commonwealth will continue to engage on the basis that these reforms do not increase the overall tax burden.”

Tony Shepherd, the chairman of the National Commission of Audit naturally agreed that the proposal was a “great reform”. Speaking to ABC Radio National yesterday, he said, “The states have most of the responsibility for delivery of services and infrastructure, and yet they produce very little of the taxation necessary to fund it. The vertical fiscal imbalance is what is killing the federation.”

However, the response from state and territory leaders has been mixed. South Australian Premier Jay Weatherill is concerned about the confusion it would cause, while his Western Australian counterpart, Colin Barnett indicated he was open to the proposal. Northern Territory Chief Minister Adam Giles warned of a ‘race to the bottom’ while ACT Chief Minister Andrew Barr said he was “relaxed” about the proposition. Speaking to ABC’s Lateline program, Mr Barr said, “I think there’s certainly scope for reform of taxation. It’s an option that needs to have a public debate and we certainly look forward to what the prime minister will put on the table this week.”

Read more at The Guardian
Read more at The Age

Opinion: Fiscal disarray apparent

If there was any doubt that the Federal Government was in disarray over its fiscal policy, the news that states and territories could be given authority to set their own income tax rates confirms all our suspicions. ‘Passing the buck’ comes to mind.

For the last six or seven years there has been a general acceptance that our tax system is complex and needs to be simplified. Indeed, just last week it was mooted that Treasurer Scott Morrison was considering a proposal to simplify tax returns by allowing people to claim a standard deduction for work-related expenses. Yet as a new day dawns it appears that blowing apart the current income tax system is the way forward.

Of course, as with all the ‘proposals’ that have been discussed, the devil is in the detail. The Prime Minister has stated that taxpayers would see no increase in the income tax they pay under any proposed system. Of course they won’t because you can bet your bottom dollar (that’s all you may be left with) that any levy imposed by a state or territory will not be classed as ‘income tax’.

When the National Partnership Agreements were withdrawn in the 2014/15 Federal Budget, the states and territories could no longer provide the necessary funding for health, education and transport. With this proposal the Federal Government is simply putting its hands up in surrender. It may try to disguise it by passing it off as giving the states and territories fiscal autonomy, but all it’s really doing is handing over a ticking time bomb, the fuse of which it lit.

Already there is disparity between states and territories on taxes – stamp duty and payroll tax are prime examples. There is also a greater burden on the heavily populated states to provide more transport, while the cost of rural health is greater in the more remote areas. Dividing the issues does not make them easier to solve.

To pit state against state is not a clever strategy for a government facing the very real threat of a shrinking economy and higher costs. To borrow the catchphrase of the British Government when faced with the threat of Scottish independence – Better together – you bet we are.

Do you think states and territories should be able to levy their own ‘income tax’? Do you think this would lead to more tax being paid by individuals? Would you see it as being the first step to ending the Federation? How would you fund the growing shortfall in revenue for health, education and other essential public services?

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Written by Debbie McTaggart


Total Comments: 76
  1. 0

    The state with the lowest tax will attract more people..

    • 0

      Does anybody remember when the GST came in? I do. The categorical promise was “it will never be increased”. Whilst it has not been increased to date the forces have been building to do just that.
      Only the gullible would believe that they will not be paying more tax in time and the ongoing attempts from this government to increase taxes on average citizens whilst talking about lower corporate taxes put this matter into context.
      I could not believe the Business Council of Australia yesterday suggesting the corporate tax rate should drop to 20% from the current 30%. So who do you think is going to be making up the difference? And I thought we had a “budget emergency”…..the next lie of convenience from this corrupt government acting for the rich and their big business interests.
      We need an election and we need Australians to vote this bunch of bastards out. We do not need puppets owned by the rich to run OUR COUNTRY.

    • 0

      No Mick the promise wasn’t that the rate would ‘never increase’. The promise was that it could only be increased if all States and Territories agreed to an increase.

      The fact that most people thought that would ‘never happen’ does not make it a promise at all.

    • 0

      No the original promise was that there would be no GST!

    • 0

      Regardless what the politicians promise at election time they will do as they please and bugger the ordinary Australians. They have their lot and you had better get on with it, you don’t count as far as they are concerned

    • 0

      Yes Kaz until Mr Howard went to an election with bringing in GST as a and won!

    • 0

      If that was the result Glen48 it would be difficult to argue that States collection of taxes was the wrong way to go though I think it is.

      By my memory, KSS is right about the GST promises too. Before it rises there are a couple mechanisms to look at.

      The first to have it applied to absolutely every transaction (with those unable to keep afloat in an agreed appropriate manner as a result supported by social security.)

      The second to reduce the costs of Government and there are so obviously many ways that can be done. Payment of outlandish wages and ‘entitlements’ not linked to productivity, putting out large scale tenders for which only small numbers have suitable capabilities rather than breaking them down into small tenders.

      The anti-competitive practice of government licensing of monopolies.

  2. 0


    Pay no more tax? Only if you are rich or a corporation, or even a business. The LNP have wasted billions of dollars on personal frolics, self indulgence, and dumb ideas, the BCA wants business to get a tax cut. Where do you think the money will come from? US!

    I believe nothing that comes out of the mouths of government spokespeople, until I have checked it against the IPA plan for Australia and the Murdoch media. If it is on the list and Murdoch wants it, I know the government really wants it, too. Everything else is to fool the useful tools who keep voting for them.

    Tyrants thrive when there is chaos because the facts become blurred and invisible. Turnbull is tossing hand grenades around hoping to scare and confuse the punters.

    Vote for anyone but LNP at the election.

    • 0

      Plato claimed Democracy would lead to tyrants taking over in the longer term.

      I wonder who will fund the private schools and hospitals. Now it is the Federal government and I suppose that will stay the same.

      One gilded system for the rich and a degradation of services for the rest.

      We can no longer talk of the Common goods because they have all been sold.

      The IPA and IMF plan is doing nothing for the ordinary person’s ongoing future. So far the only people being asked to contribute more has been the minimum income earner and the self funded retiree. It is incredibly unfair.

    • 0

      Nailed it Joyful!

  3. 0

    if the idiot turnball wants the states to collect the tax for every state then maybe we should get rid of the federal government here we have a government with no policies and then you have the health minister to want gp’s to take over seeing specialists what a complete joke gp’s cant even refer you for a mri scan it has to be a specialist bring on the election to get rid of this pack of idiots he doesn’t mention chasing up the tax his mates are not paying or himself or his wife he would be the worst prime minister and his team look at how many of his ministers have got the flick and there is more to come this government is running scared with no policies at all if the liberals had to win a election on their own merits without the nationals propping them up they would not have a hope that’s why he wants the independents out with no say what a corrupt government.

    • 0

      Nationwide issues of corruption and the undue influence of big vested interests should be front and centre in this election campaign, but you won’t hear a squeak from the LNP or ALP.

  4. 0

    We won’t need a Federal Government if States have to collect their own taxes.

    • 0

      Entirely correct as most services are now contracted to private corporations and the National Security could be run by COAG.

      A Head of State would be required and maybe a Federal Public service answerable to COAG.

      Think of the savings.

      Canberra could be sold to the Chinese as an administration centre for their numerous Australian holdings and the deficit paid off.

      Just joking but it is a thought. Haha.

    • 0

      With modern communications it would be more efficient to sack six state and territory governments, revamp local governments and make Canberra take responsibility for uniting the country with a national approach to health, education, welfare and the judiciary as well as defence, trade and foreign affairs.

      I can’t see the crews of the state gravy trains agreeing to that one any time soon.

    • 0

      Whitlam years thought there Phil and not a bad one.

    • 0

      We definatley have one tier of government too many.

    • 0

      The previous Labor government thought that we needed 200 in the Education department, when it was a state responsibility?

  5. 0

    This is a classic buck-passing move by a sleazy ex-banker politician, to remove tax heat from himself, and transfer it to others.

    Note the reference to “income tax”. This insinuates that the States will increase tax on your INCOME.
    In reality, the States impose LEVIES, SURCHARGES, FEES, DUTIES, and other IMPOSTS, that bear NO RELATION, as to whether you have income or not!!

    So under the “New Turnbull Tax Regime”, as well as paying income tax, you will start to find a raft of ADDITIONAL STATE imposts, charges, levies, fees, duties and taxes on transactions – just as any GOOD BANKER rips you off with a multitude of hidden, opaque, and outrageous charges – just when you thought you’d paid everything up!!

    Meantimes, the sleazy corporate set get a vast reduction in tax levels – at the same time as their corporate tax lawyers devise cunning schemes to set up multiple trading entities based in multiple jurisdictions, so they can avoid all the extra STATE imposts, fees, duties and charges!!

    This whole scheme smacks of a return to the bad old days, when you were slugged left right and centre, with a raft of hidden state fees, charges and imposts, as well as income tax.

    The introduction of GST was supposed to have eliminated all these state charges and imposts – now we have a sleazy ex-banker PM, re-introducing them as “Tax Reform”!!

    Something stinks here, and it isn’t the rubbish bin!!

    • 0

      Divide and conquer. Unmake the Commonwealth and reduce it to six petty states squabbling over the spoils while the multinationals dictate policy in a race to serfdom and penury.

    • 0

      Despite that I have held some hope for Mr. Turnbull (not entirely dissipated) it looks similarly as a buck passing measure to me too Aaaron. Same overall tax cost likely but no federal government responsibility.

      Government needs to look at the wages and entitlements of its staff. These are way out of synch with the community. It needs to routinely break projects down into tender blocks sized so that wide capability exists and take the competitive advantage. The health and medical void is a yawning gap which will consume all if we do not more assertively deal with purchasing as a nation gaining by the numbers.

      Finally, and Mr. Turnbull does assert this. We will have to learn to live within our means. That will mean denying ourselves some things.

      As individual buyers we could take on the same attitude.

  6. 0

    Actually, it makes a lot of sense. The states administer the health system, the federal government doesn’t do it. Therefore, the States would be much better off doing both the collecting and administering themselves. One proviso should be that the federal health bureaucracy should also be dismantled, saving a lot of duplication and waste.

    Of course, there’s no guarantee that States wouldn’t increase taxes over time. But maybe it would make them think realistically about how much health is costing these days and how in heavens name we are going to fund it all in the future. At the moment, whenever the feds suggest any sort of cuts or savings they get howled down by the States. Give the States a go and see how they like it.

    • 0

      And residents of states with lower resources simply cross borders to access better health services? Or do the struggling states levy higher taxes than well resourced states, potentially resulting in mass migration? Heaven help Tasmanians if this is introduced. NT residents might be okay since it’s not a state, but then….?

      I see it as divisive and a cop out. How the hell do you manufacture money by switching responsibility for raising it? You can’t. You drive administration costs up, and ultimately the only way to meet costs is to raise more money which means increasing taxes.

      It’s time the LNP stopped beating around the bush and faced up to the reality that they are not collecting enough tax from certain sectors who have access to too many avoidance rorts. Stop the BS and get on with running the country properly. Reduce capital gains tax concessions, negative gearing concessions and superannuation tax concessions and address corporate tax dodging and there will be ample funds to pay for the services a healthy society needs. But maybe, at the same time, address what’s creating ill-health? Get serious about addressing obesity, mental illness, poverty, frustration and hopelessness and we would have a lot less sickness. Make the health system a HEALTH system rather than a sickness industry that profits handsomely from keeping people on the treatment treadmill. Encourage more use of Naturopathic and Homeopathic medicine, physiotherapy, counselling, and dietary changes. Fix the nonsense method of specialist referral that is costing the earth.

      Turnbull is a great disappointment. He is proving to be as lazy and lacking in capability as his predecessor and most of this team. The LNP focus seems to be on protecting the wealthy tax evaders from obligation at all costs, and finding new ways to bleed stones.

    • 0

      DaveV, do you really think that the feds will reduce the amount of taxes that they now take. Very unlikely, we will just pay more tax.
      Ton-o-bull wants to increase taxes but he hasn’t got the guts to do it and face an election, so he tries to put the responsability onto the states in the hope that the voters won’t tie it to him.
      I would bet that if the States were to take over taxation Ton-o-bull will reduce Federal funding by the amount collected.

  7. 0

    Australia has become a weak country.
    Regardless of it’s many resources it is weak and in debt and is being SOLD OFF at an alarming rate. Australia is selling off its ASSETS just to SURVIVE!
    Once an ‘asset’ is sold it becomes a ‘one time profit’ but then ceases to be an ASSET.
    We are weak because we allow ‘personalities’ to act as the managers of our countries wealth.
    They are called Politicians and they simply play at Politics.
    Our constitution is being ridiculed and our government system can now be seen as being flawed…..seriously flawed.
    The world is watching! Some ready to take advantage by simply buying up everything that is put up for sale. If not resources then state assets and land.
    We are weak, we are forced into elections by law but the leaders we choose now, never serve a full term.
    For every elected government, the leaders are deposed mid term and the job taken by an individual chosen by their own political party.
    World leaders never quite know WHO will step off the plane when Australia comes calling.
    UNSTABLE government is expensive and serves to create destabilisation and disrespect from the electorate…..our Nation. Who can we TRUST?
    SIX state governments and a federal government manage us.
    It is the most expensive government system ever devised and is now costing us dearly and making us bankrupt! Government keeps on growing and politicians reap their ‘reward’ and live longer and They BLAME us! The Electorate.
    Both state and federally the version of government is NOT based upon good management…. but rather how can we TAX them more!
    We live in this country where we have to extradite people from one state to another as though we live in SIX different countries.
    Those SIX different countries have different laws.
    Those SIX different countries have different police forces.
    Those SIX different countries have SIX different Premiers and government.
    Those SIX different countries have to sell Assets to survive.
    Those SIX different countries are led by an UNSTABLE Federal government.

    The BIGGEST DEBT that Australia has is GOVERNMENT.
    Economically we are being DESTROYED by the colonial system from the 1800’s!
    The Westminster system was designed and used by England as ONE government for ONE country.
    Australia is governed by the Westminster system SEVEN TIMES and with no idea of WHO will lead us during any one full term of government.

    • 0

      The bottom line is, as I have said many times, this country is simply over governed, from Federal and Senate ,to State and Local.
      You are in my opinion pretty much on the ball Bes with all that you say.

    • 0

      I agree we are over governed here in Australia and you forgot to include the local councils in your post.

      The duplication of systems and processes. departments, officials and so on is a disgraceful waste of money. Having said that, given the outcry in NSW as the State Government moves to amalgamate small (and largely inefficient) local councils in to bigger more cost effective councils, can you imagine just how loud the screams would be if it were to be mooted that all State and Territories Governments be disbanded and a single centralised Government take charge?

    • 0

      You have summed it up perfectly Bes, thank you. The LNP now wants to unravel the Commonwealth so that its corporate masters can pick of six little statelets with ease, as they do in the Disunited States.

    • 0

      Bes, you are spot on!

  8. 0

    Sister works in a hospital reckons the waste is over the top,,every thing gt thrown out once use ..in the olden day they use to autoclaved .

    • 0

      The only use once is to try to overcome the gradual incursion of infections like Golden Staph, and others that are resistant to known antibiotics.
      It may seem like a waste but if you or yours contract one of those infections in Hospital you would not be happy.
      There is a reason for it altho’ perhaps it doesn’t have to be every item, especially those that have not been used.

    • 0

      I agree there is waste within the health system – over servicing comes to mind – but single use equipment is NOT it.

    • 0

      In a retirement home, I discovered they were throwing out sheets of bubble-wrapped pills because the outer box had been opened.

  9. 0

    It would be the first step to ending the Federation and there would be a bunfight amoungst the States to attract businesses by cutting business tax rates.
    This appears to be a desperate move by Turnbull to get something on the table re tax as he has nothing else so far.
    He has stated that he wants to remove Federal funding for Sate schools but will maintain Federal funding for Private schools.
    Seems like the Institute of Public Affairs with their extreme right wing economic ideology are still moving in the corridors of power within the LNP. The end of our so-called classless society??

  10. 0

    If you think inequality is disastrous now you ain’t seen nuthin’ yet. What a truly appalling prospect.

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