Territory reform sets example for states

Our nation’s Capital city, Canberra, usually only features on the stage of national political debate when used as a synonym to describe the Federal Government. This may be about to change with respect to reforming inefficient taxes.

You would be forgiven for missing it, but the ACT Government recently handed down its Budget for 2012-13. Included in the Budget was a five year reform plan towards a fairer, simpler and more efficient tax system. That’s right, a Territory (let alone a State) Government proposing to reform their own inefficient tax base and what’s more, without any caveats involving financial assistance from the Federal Government.

The States and Territories impose some of the least efficient and worst designed taxes in Australia. Stamp duty is a standout. Why is there a disincentive for people to move homes and locations for work purposes for example, with huge sums being payable as stamp duty on property conveyances? Insurance duties also create a perverse situation where people who are doing the right thing and insuring against risk are penalised with a tax on their insurance contracts.

Well, the ACT Government has now commenced a long-term plan of reform that includes an eventual phase-out of conveyance duties (over 20 years). The revenue to afford this will come from general rates, which the ACT is in a unique position of also levying due to its combined state and local government functions. The reforms also include abolishing duty on insurance policies over the next five years. Acknowledging this is a long-term process, the Government recognises that reform needs to be phased-in to avoid distortions in the market.

If the ACT can do it, why can’t its colleagues in the States do likewise? Perhaps an even bigger question to be answered is when will the Federal Government show leadership on the issue of Commonwealth-State relations? The Federal Government should bring the States on board and seize the opportunity to set a national vision for tax reform that includes the repeal of inefficient State taxes.

Robert Jeremenko
Robert
Jeremenko
Robert Jeremenko is Senior Tax Counsel of The Tax Institute.

The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.

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