How many more taxes can we bear?

How many taxes can we bear here in Australia? Apparently more discussion on new taxes is coming.

A new Green Paper prepared by Tony Abbott’s own office suggests that the funding of our states and territories could be the next big debate that rises to the fore in the debate about tax and from this, it doesn’t look pretty.

The paper, which has been released in draft suggests that states could be funded through a single annual payment from the Commonwealth and then given more scope to raise their own taxes, a thought that will chill many to their bone.

The proposal outlines three different alternatives for the overhaul of our federation and how fiscal imbalances are handled where the Commonwealth raises and distributes income to states that need it for their provision of services like education and hospitals.

The Sydney Morning Herald this morning reports that the first option being considered in the report is a “single, untied funding stream” to be spent on agreed service delivery areas such as hospitals and schools. It would replace the current web of payments and “national partnership” agreements.

They quote the Prime Minister and Cabinet report as saying “this option would provide states and territories with greater policy autonomy, especially in terms of using funding to drive their own economic priorities. It would reduce the Commonwealth’s ability to prescribe conditions on its funding in areas of state and territory responsibility”.

But it would also raise very clear challenges around accountability for national and significant taxpayer funded projects.

The second options sees the Federal Government “making room” in the income tax base so that states and territories can raise their own tax rates.

“…the Commonwealth would reduce personal income tax rates by a certain amount and states and territories would be allowed to apply a ‘surcharge’ of an equivalent amount,” said PM&C.

An environment like this could look similar to that of America, where different states compete, using their tax rates, to attract businesses and individuals to live there.

An important part of the second option is the potential GST broadening that sat within the paper.  According to the SMH, a per-capita GST allocation would require a $6.5 billion one-off payment to states to ensure no one is worse off, according to Mr Abbott’s department.

A third option sees the states and territories revenue raising reduced and the federal government expanding their funding and policy roles.  It may certainly even see the tier of government at state level shrinking.

As you can see, there is a number of debates within this one change that the Opposition has already stepped up to the plate on.  The first of which is a raised or broadened GST, which no doubt worries many.  Second, do we really want to pay more taxes to our states and do we think the Federal Government will really drop their core tax rates to allow for it? And thirdly, the big one – do we really need states at all?