Thoughts on the 2011 Tax Forum

Federal Treasurer Wayne Swan told the Parliament last month “the Tax Forum provides the perfect opportunity for state governments to take responsibility for the taxes they impose, engage with ideas for reform, and build momentum for their reform efforts.”

I agree that the forum provides an opportunity to continue the ACT Labor Government’s reform agenda.  Reform is never really “finished” anyway and tax-reform, in particular, is an ongoing process. In my experience, delaying reform only makes the task harder in the long run.  So we plan to continue a sensible and measured reform agenda.

We know the challenges we face. The Intergenerational Report projects that health spending will more than double by mid century, hitting 7 per cent of GDP, up from less than 3 per cent in 2001.  Age pensions will rise from 2 per cent to 3.5 per cent of GDP.  The report also notes that school spending is rising at a rate of 6 per cent a year.

We have heard the warnings at weekend from the Business Council of Australia that without an overhaul to taxation, the nation faces a $70bn fiscal black hole.

The ACT is certainly not immune to these challenges.  So what is to be done?  And who should do the heavy lifting? 

In my view, the states and territories do have a role to play in improving the efficiency of Australia’s tax system.  However, any wholesale abolition of state and territory taxes will have to be funded from alternative revenue sources.

To scrap existing taxes quickly, the states and territories would need access to extra revenue from the commonwealth. Short of that, any tax reform will have to be incremental and undertaken as there is budget capacity.   This is not all bad though, as the Henry tax review said, "it is neither possible nor desirable to make all of these changes too quickly."

The ACT Government will examine any sensible reform proposals that are put forward at the forum and would particularly support proposals that:

• address the mismatch between the territory’s revenue and spending responsibilities;
• increase control of our revenue base; and
• increase budget certainty.

For example, the Government could examine proposals to broaden our land and payroll tax base to fund cuts to other more volatile territory taxes.

The Government is interested in a sensible debate about how to raise tax as a share of GDP to meet the intergenerational report challenges. Sooner or later it will have to happen, so we may as well start thinking about the most efficient way to do it.

One way or another, our budgets have to be put on a more sustainable footing.