The draft report of the NSW government’s Federal Financial Relations Review has addressed the challenges faced by Aussies in the past six months, calling for urgent federation reform and the tax system that underpins it.
Aside from tackling the issue of “creeping centralisation” and how it has fostered “a learned financial dependency among the states”, the report, ordered by NSW Treasurer Dominic Perrottet and chaired by former Telstra boss David Thodey, calls for changes to the “tax mix”, to make taxes as simple as possible, as well as an increase of the GST above 10 per cent to up state revenue.
However, one of the main points the report makes, and one impacting small businesses, is the need to agree on a national approach to payroll tax reform to address the “hollowing out of the tax base and the complexity this imposes on taxpayers”.
Business NSW has welcomed this suggestion with open arms, noting that payroll tax is “the last thing we need at a time of soaring unemployment and global uncertainty”.
“While it’s an important revenue source for state governments, that doesn’t mean we can’t look at ways to make it less harmful for job creation,” said Business NSW CEO Stephen Cartwright.
He revealed that small employers in NSW have been incurring around $10,000 a year in tax administration costs associated with payroll tax alone. As such, Mr Cartwright opined that looking at national reform options offers a "better way forward".
“The Henry Tax Review considered ways to improve payroll tax, including alternative revenue sources that would greatly reduce tax administration costs.
“Tax-free thresholds remain a vital feature of the payroll tax system and are needed to protect smaller businesses in the absence of more comprehensive reforms,” Mr Cartwright said.
The report also recommends the removal of stamp duty on property with a broad-based land tax, and the phasing in of an appropriate transition process that recognises the impact on property owners.
According to Mr Cartwright, some estimates suggest that the cost of stamp duty is as high as 107 cents for every dollar collected, compared to only 8 cents for more efficient taxes.
“This means that we are unnecessarily destroying jobs, economic opportunity and restricting the natural movement of citizens through our over-reliance on stamp duty,” Mr Cartwright said.
Moving from tax to increased decentralisation, the Thodey report suggests that if Australia could reform its federal system to match the decentralisation in other leading OECD federal countries, per capita income could increase by more than $4,500 per Aussie, translating to a long-term payoff of $116 billion in GDP.
“To achieve this payoff and meet the challenges before us, the federation must evolve. The crises of the summer’s bushfires and COVID-19 have put in plain sight how the status quo is no longer fit for purpose,” the report reads.
Currently, the review is welcoming comments by 31 July to inform its final report to the government.