More efficient state taxes

The Government's vision for a stronger, smarter and fairer tax system extends to reform at the state and territory level to improve productivity and economic growth.

The Australia's Future Tax System (AFTS) review highlighted that some taxes are more detrimental than others when it comes to the impact they have on living standards. Economic growth can be promoted by relying on more efficient taxes and reducing inefficient taxes.

Inefficient State And Territory Taxes

The AFTS review found that some of the most inefficient taxes levied in Australia are state and territory taxes. It identified reforms to improve or abolish existing state and territory taxes that are a drag on the economy. In all, the AFTS review made 26 tax-related recommendations requiring state and territory or intergovernmental action. Many of these recommendations have been echoed by state and territory tax reviews in recent years, such as those of New South Wales, Victoria and the Australian Capital Territory.

For example, abolishing insurance taxes would reduce economic costs resulting from under-insurance or non-insurance, which leave individuals and governments exposed to more risk than they would otherwise bear. Insurance taxes also detract from fairness as the burden of these taxes falls disproportionately on low income households.

Stamp duty on the transfer of property is a similarly inefficient source of taxation that hampers the ability of families and businesses to adapt to changes in their circumstances or take advantage of new opportunities. Stamp duty on property makes downsizing after the children have grown up or moving to take up a better job more difficult. It also makes it harder for businesses to shift premises or expand as their business grows. This stifles productivity and economic growth.

State and territory leaders have acknowledged the need for reform of their tax systems and have undertaken to work together to advance proposals. The New South Wales and South Australian Treasurers have agreed to work with the Council for the Australian Federation to develop a state tax reform plan. The Australian Capital Territory has led the way recently by funding a bold, comprehensive and progressive plan for reform of its property taxes. The Australian Government supports reforms that make the tax system fairer and more efficient, in line with its vision in commissioning the AFTS review.

Sources of state and territory tax revenue in 2011-12