No man is an island” came to mind as the ACT Government was forced twice recently to announce changes to tax regimes in the face of competitive pressure from NSW.The first was payroll tax and the second was registration and licence arrangements for tourist mini-bus operations. Businesses would move or set up elsewhere unless the tax reductions were made. Of course, it also required a little publicity before a looming election.
If the ACT did not cut the taxes it would take only a few deserters to eat away any revenue advantage of a higher tax, leaving aside the public odium of having a higher tax.
Competitive federalism’s most strident example came when the Bjelke-Petersen Government in Queensland abolished death duties in the 1970s and all other states were forced to follow.
To continue John Donne’s line: “”Never send to know for whom the bell tolls. It tolls for thee.”
The competitive pressure is at once a handsome and dangerous thing. It is handsome because it sometimes stops foolish and greedy governments from raising extra taxes to squander on vote-buying. It is dangerous because governments outside the territory (with different considerations) partially drive our taxation policy.
It is also dangerous because it tends to result in a narrower and narrower tax base, and narrow tax bases are very inefficient. They result in tax considerations determining whether or how a transaction should be done, not on economic, social and a broad range of other desirable considerations.
At present, whenever large sums of money change hands there you will find a government or lawyer or both with their hand out for a cut. Some people, therefore, avoid those sorts of transactions or simply cannot afford them.
Stamp duty is a classic. Stamp duty on dwellings have reached excruciating levels. The $3000 for a first home or $5000 for a larger second home have become factors in whether a move will be made at all, rather than decisions being made purely on economic, social and lifestyle choices.
On one hand, we have a government that slugs people with the disincentive of thousands of dollars to buy first homes, or to change homes to be closer to work or to better suit changed family size. On the other hand, we have a government that wants to cut its Housing Trust waiting list, that wants to reduce traffic on the roads and that hypocritically trumpets efficiency as the underlying reason for its in-fill policy.
The motor-registration cases were also classic. Here was a government proudly asserting its support for small business and its encouragement of the tourism industry (its manna and cargo cult), yet it was slugging them with registration fees that were driving them across the border.
National Capital Wine Tours bought an eight-seater bus which was classified as a “”large bus” and hit with $1325 registration and third-party costs, the same as a 60-seater.
Another tourist operator, MudMaps Pty Ltd, says the cost difference between the ACT and NSW is $559 for the first small bus and $659 for subsequent buses. Further, the ACT requires six-monthly inspections.
These imposts are now to change, but probably nothing would have happened without the competitive pressure from NSW (and an election around the corner).
Competitive federalism will clearly stop states and territories from over-taxing mobile businesses. Further, the Hilmer recommendations will stop the over-charging, inefficient state public utilities from doubling up as tax collectors.
It means the states and territories are going to have to get smarter with tax policies if they are to retain the autonomy to provide what they see as essential services.
In short, they are going to have to broaden the tax base and respond to changed circumstances. Lots of little taxes may sound administratively inefficient. Not so. Computer technology makes the gathering of small taxes quite easy _ witness the FID amounts on your bank statement.
Indeed, I dare say you could reintroduce a small death duty, now that high stamp duties in Queensland and the federal capital gains tax make moving less palatable.
A few large taxes are distorting and inefficient, and make the revenue vulnerable to the tolling of the outside bell.