Queensland Economy Watch

The late Kerry Packer’s riposte at the 1991 Print Media Inquiry is unfortunately still relevant today:

…if anybody in this country doesn’t minimize their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra.

The Tax Forum in Canberra today and tomorrow is unfortunately focussed only on a limited number of taxation issues (don’t mention the GST, alcohol excise, etc), rather than on the bigger question of whether the Government is delivering the right services and whether it’s appropriate to tax the community to fund those services.

Thankfully the Victorian Government is pushing to expand the Tax Forum debate to expenditure issues. Perhaps because it’s in its first year and it’s yet to be jaded by the burdens of office, the new Victorian Government is proposing some bold reforms. It’s calling for a review of spending overlaps between the Commonwealth and States and says it would like to see taxes abolished rather than simply replaced with more efficient taxes. Now that would be real tax reform. Michelle Grattan in today’s Age reports (State push to reduce duplicated spending):

THE Baillieu government has called for a national plan to cut spending by reducing duplication between federal and state governments.

As Treasurer Wayne Swan warned participants in today’s tax summit that proposals for cutting tax must be funded, Victorian Treasurer Kim Wells said the focus of national tax reform ”should be to reduce the overall tax burden on businesses and households”.

Taxes should be eliminated or cut, rather than just having one tax replace another. A national agenda to reduce administrative duplication ”could significantly cut government expenditure requirements”, Mr Wells said. Duplication should be reduced and data sharing increased in areas such as water policy, transport, health, and secondary and vocational education.

”Eliminating overlaps across state and federal bureaucracy represents a real opportunity to cut government costs and reduce pressure on government budgets,” he said.

In its position statement for the upcoming Tax Forum (available here) the AI Group has called for an abolition of inefficient State Government taxes such as stamp duty and a hike in the GST to pay for it.  The position statement reproduces this great chart from the Henry Review which is based on modelling by KPMG-Econtech:

The chart shows the additional loss to the economy – e.g. through discouraging transactions such as selling a house that may have occurred in the absence of a tax – due to the raising of one dollar by a particular tax. So, for example, the cost of raising one dollar through stamp duty is one dollar plus the efficiency loss to the economy of around 35 cents. The GST, however, is much more efficient and we would be better off if there were a change in the tax mix.